In my 2021 article titled ‘The Why Behind Mergers and Acquisitions’, I explained with examples, the driving factors behind most of the M&A transactions that define the global business landscape. In that paper which was well received, I highlighted survival, perceived synergies, industry changes, and other factors as the core drivers of M&A deals.
The emergence of OpenAI’s ChatGPT and its rising dominance of the chatbot/search engine market has thrown up a perfect scenario to further explain why M&A deals happen. This has presented an opportunity to reflect on whether you should be making and acquisition or positioning your business for potential acquisition depending on the dynamics of your industry.
The AI Chatbot State of Play
Google, owned by Alphabet has been the dominant player in the search engine business for several years. Bing, owned by Microsoft has largely lagged. However, OpenAI, developed by a company founded by Elon Musk (yes, him again) and Sam Altman in 2015 has shot to limelight in the chatbot/search engine market with its latest AI – ChatGPT which uses generative artificial intelligence to provide answers to varying degrees of tasks including writing codes, academic essays and predicting future outcomes (including elections). ChatGPT recently became the first AI chatbot to record over 100 million users within its first 2 months of launch. As a matter of fact, on 31st January, it recorded 28 million users on its website. This is simply historic and it is predicted to dislodge Google from the top of the search engine food chain.
In response, Google developed and quickly launched ‘Bard’ to compete with ChatGPT. However, Bard flopped at launch by giving a factually incorrect response to a question. This led to doubts over whether Google can compete with OpenAI in the AI chatbot war, with the consequential run on its shares in the stock market.
Why is this important?
The reason is simple. Microsoft, Google’s long-time competitor has as of February 2023, invested about 11 Billion Dollars in OpenAI in a collaboration/partnership type arrangement (a loose merger) which among other things, enables Microsoft to integrate OpenAI’s technology to the Bing search engine thereby making it far more attractive than Google. Bing has therefore recorded massive gains in searches because of the increased capability which OpenAI has brought to it. Google is determined to respond and has acquired a 300 Million Dollar stake in Anthropic, a start-up founded by former OpenAI employees, which has built a chatbot called Claude.
What it all means
It is clear that Google’s acquisition of stake in Anthropic is driven by the need for survival and the rapid changes in its search engine environment. One can assume that any AI chatbot which shows some promise (no matter how little) could be acquired by either Google, Microsoft or Baidu (China’s search engine leader). Another effect of this is that acquisitions in the AI chatbot market will be overpriced given that the acquisitions are driven by the need for survival and to prevent the company from being acquired by a rival. Due Diligence for these acquisitions may also be lax and company executives may pay little attention to concerns raised by advisors given the need to push through a deal to stave off acquisition by a competitor. Thus, while speed of acquisition is key in this AI war, caution has never been more important in view of the failure rate of survival motivated acquisitions.
