When Facebook bought WhatsApp for $21.8bn in 2014 (roughly €19.5bn in today’s money), many in Europe couldn’t believe it. Why should Facebook pay so much for what was then a relatively small messaging app?
A decade on, we know better. Facebook’s move was a canny one, removing a potential competitor and expanding its own ecosystem. Since then Meta, Amazon, Microsoft and Alphabet have gone on an acquisition spree with little hindrance from competition regulators.
In Europe and other free markets around the world, these American firms dominate the internet in its current state of development, from social media to search. Now, with AI emerging as a potentially transformative technology, some in Europe are trying to stop this recent history from being repeated.
In March, a handful of influential civil society groups warned that these same tech giants are already jockeying for a dominant position in Europe’s AI sector, and proposed new regulatory powers to capture investments and acquisitions that could, like Facebook’s purchase of WhatsApp, later coalesce into a dominant position.
AI providers are incentivised to seek monopolies. In a similar fashion to how social media companies both create and benefit from network effects, AI companies become more powerful as their user base grows because that expands the data that trains their models. Plus, because AI models are expensive to run, challengers face high barriers to entry.
Microsoft cooperates with OpenAI
Those scale requirements give an advantage to established tech giants, which command enormous investment potential alongside invaluable cloud infrastructure.
The investments have already begun, most notably Microsoft’s close partnership with OpenAI, which has prompted enquiries from the US and UK competition regulators. The German regulator also explored whether to apply merger control law to the partnership, before deciding against.
Margrethe Vestager, the EU’s outgoing competition commissioner, said at a recent AI event that “strong competition enforcement is always needed at times of big industrial and tech changes.” She has also said that, for European consumers, “the choice should not be American or American.”
Alternatives to US tech needed
It’s not enough to regulate American companies, however: policymakers on this side of the Atlantic need to have an honest conversation about why Europe did not create any of the current crop of tech giants.
The field of promising European AI companies is thin. The only challenger of note is Mistral, a French startup that recently entered into a partnership with Microsoft. The problem is not lax competition enforcement, but rather a poor regulatory and investment environment for innovative new companies to scale up.
Europe’s venture capital is leagues behind the US. The single market is fragmented, complicating companies’ efforts to spread across the continent, and sector regulations like the AI Act put large administrative burdens on companies stretched for resources.
As former Italian Prime Minister Mario Draghi thoroughly explored in his recent competitiveness report, Europe needs to cut its regulatory burden and expand its capital markets for start-ups to blossom.
If not, the risk is that Europe’s AI entrepreneurs will follow in the footsteps of other recent tech founders, and leave for America just as their companies begin to find success.
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This op-ed was originally published in The Parliament Magazine
Varg Lukas Folkman is a Policy Analyst in Europe’s Political Economy programme.
The support the European Policy Centre receives for its ongoing operations, or specifically for its publications, does not constitute an endorsement of their contents, which reflect the views of the authors only. Supporters and partners cannot be held responsible for any use that may be made of the information contained therein.
