Could the EU's Digital Markets Act (DMA) Slow down Generative AI?

The DMA might slow down Generative AI's bullish hype.

Hey Everyone,

If you haven’t noticed, a lot of the momentum behind Generative AI is driven by some of the biggest companies in the world like Nvidia, Microsoft, Meta and Google.

Now I believe the fairly aggressive DMA by the EU might have a material impact on that movement.

The European Parliament and EU member states reached an historic deal on the Digital Markets Act, in late March, 2024. Now some of their probes will touch upon the unfair monopoly behavior of BigTech like Apple, Google and eventually Microsoft as well.

So far Generative AI has been pushed by gatekeeper behavior in the Cloud by Microsoft’s deal with OpenAI among other things.

What is the Goal of the DMA?

• A key aim of the reforms is to prevent tech giants from abusing their market position to harm smaller rivals.

• So-called “gatekeepers” that violate the DMA face potential fines of up to 10% of their global revenues.

For repeat offenders, this goes to 20%. It’s unlike the slap on the wrists the EU has been known for historically regarding anti-trust behavior. It’s not the EU’s AI Act that is most significant on Generative AI, it’s oddly enough the DMA.

As China has been hit hard with AI chip bans and a major exodus of foreign investments, it’s really just BigTech controlling the Generative AI narrative. Of course there are “Open-source” startups too like Mistral and others, but even Meta’s Llama-3 (expect in June) is trying to infiltrate that movement.

The problem is, so much of the Generative AI bull market from a stocks perspective, is dependent on the huge margins and monopoly power of American BigTech players. If they begin to struggle in China (like Apple and Tesla) or if they are hit hard by DMA probes and fines (like might happen to Google and Meta), that will materially impact the future of Generative AI and how much funding it gets in the near to mid term.

Generative AI leaders are now more or less held hostage by the Cloud leaders, including Azure, AWS, Google Cloud and others. This might result in direct violations of the DMA in Europe and from the perspective of the EU. Especially relative to their own players like Aleph Alpha (Germany), Mistral (France) and so forth.

The law aims to clamp down on anti-competitive practices from tech players, as well as force them to open some of their services to competitors. The Generative AI market being bulldozed and owned by BigTech is certainly the EU will look seriously into as we know OpenAI and Microsoft will face the majority of the scrutiny. The $13 Billion investment into OpenAI by Microsoft with advanced early access to GPT-4 was a major anti-competitive moment in AI.