Microsoft has stepped down from its observer seat on the OpenAI board, a move that underscores the increasing regulatory scrutiny on tech giants' relationships with AI startups. This decision, revealed in a letter to OpenAI and first reported by the Financial Times, follows intensified regulatory examination of Microsoft's $13 billion investment in the San Francisco-based AI developer.

The letter, announcing the immediate resignation from the observer role, highlighted the progress made by OpenAI's new board since the high-profile firing and subsequent reinstatement of CEO Sam Altman last year. Microsoft cited OpenAI's commitment to safety and the development of a positive company culture as reasons for stepping down.

"Given all of this, we no longer believe our limited role as an observer is necessary," stated Microsoft. Although this role did not carry a vote in board decisions, it had drawn attention from competition regulators in both the United States and the United Kingdom. In the UK, the Competition and Markets Authority (CMA) is reviewing whether Microsoft's partnership with OpenAI constitutes "an acquisition of control," while the U.S. Federal Trade Commission (FTC) is also investigating the alliance.

The European Commission, while not conducting a formal merger review, is scrutinizing the exclusivity clauses in the agreement between Microsoft and OpenAI. This regulatory pressure has evidently influenced Microsoft's decision to withdraw its observer status, aiming to alleviate concerns about its control over OpenAI.

An OpenAI spokesperson confirmed the establishment of a new strategy to engage with key strategic partners like Microsoft and Apple, along with other financial investors. "Moving forward, we will host regular stakeholder meetings to share progress on our mission and ensure stronger collaboration across safety and security," the spokesperson said.

This new approach eliminates the need for board observers, preventing Apple from placing Phil Schiller, head of its app store, on OpenAI's board-a move that was anticipated following an agreement in June. Apple has not yet commented on this development.

The regulatory spotlight on investments in AI startups is broadening. Besides examining Microsoft's ties with OpenAI, the FTC is looking into relationships between AI startup Anthropic and tech giants Google and Amazon. Similarly, the CMA in the UK is probing Amazon's and Anthropic's partnerships as well as Microsoft's collaborations with Mistral and Inflection AI.

Alex Haffner, a partner at the UK law firm Fladgate, emphasized the regulatory environment's impact on Microsoft's decision. "It is clear that regulators are very much focused on the complex web of inter-relationships that big tech has created with AI providers, hence the need for Microsoft and others to carefully consider how they structure these arrangements going forward," he said.

This regulatory scrutiny stems from concerns over the potential consolidation of power within the AI industry by a few major players, potentially stifling competition and innovation. The complex alliances between big tech companies and AI startups have prompted regulators to closely monitor these relationships to ensure they do not lead to anti-competitive practices.