EU balks at Microsoft’s deal with French AI startup

BRUSSELS — A partnership between technology giant Microsoft and French startup Mistral has drawn criticism in Europe — and made the two firms new enemies in Brussels.

The deal, announced Monday, means Mistral can train its technology on Microsoft's supercomputers. Some of Mistral's AI models will become available as premium features for Microsoft customers. Microsoft is also investing €15 million in the French outfit.

It immediately sparked an outcry from some European Union policymakers, especially as Mistral played a key role in fierce lobbying over the Artificial Intelligence Act only weeks ago. The French government had pushed for changes that aimed to allow innovative European AI firms — like Mistral — to grow and potentially even rival American tech giants.

The risk is that this new deal could see Europe's best shot at competing for world-class artificial intelligence technology go up in smoke.

“Mistral will pay a high credibility price for a relatively small deal with Microsoft," said Marietje Schaake, a special adviser to European Commission Executive Vice President Margrethe Vestager. "Its hard-lobbied ‘unique selling point’ of competing with Big Tech rings hollow today."

The pact also casts doubt on Mistral and how it positioned itself in the AI lobbying as a plucky European hope for the next wave of tech innovation.

Mistral was involved in the vocal opposition against EU rules on advanced foundation models, those that underpin applications such as ChatGPT. It arguably caused Paris to call for substantial changes to the text to give European champions the chance to succeed.

But now France's AI darling is working with the United States' Big Tech.

"The story of the French and Mistral lobbying to protect European champions seem to have been a front for American-influenced Big Tech lobbying," Kim van Sparrentak, a Greens MEP who worked on the bill, said.

"European regulators have been played." Kai Zenner, the head of office for MEP Axel Voss, said on LinkedIn.

The two lawmakers who led the AI Act, S&D's Brando Benifei and Renew's Dragoș Tudorache, didn't want to criticize the deal straight away, demanding, respectively, "more transparency" or "not to jump to conclusions." Tudorache even applauded "the level of visibility and recognition" that Mistral got for its work.

AI consolidation

For Microsoft, it's yet another high-profile partnership in the hot field of generative AI, after its tie-up with ChatGPT maker OpenAI.

Concerns are growing that the race in the field of generative AI is already over — and that the field is dominated by the U.S. Big Tech companies that moved swiftly to work with initial pioneers, such as OpenAI.

European antitrust authorities are already checking on the links between Microsoft and OpenAI, and say they'll also scrutinize Microsoft and Mistral.

For Mistral to succeed, the deal also shows how European companies working on generative AI applications may need to work with U.S. Big Tech companies if they're going to scale up.

Venture capitalists are not surprised by Mistral's move, and even said it was inevitable.

“It’s logical that Mistral would work with an enterprise giant like Microsoft as it seeks to scale and gain distribution,” Nathan Benaich, general partner at AI-focused VC firm Airstreet Capital, said.

Microsoft is one of the heavyweights in the space, with its Azure cloud services. Others are Google — which recently launched AI model Gemini — and Amazon.

Generative AI applications require a lot of computing power to be able to train and run models.

The European Commission has been trying to counter that, by launching an initiative in January that would pair European AI startups with European supercomputer capacity.

That likely isn't enough.

“Cloud is a capital-intensive business," Benaich said. "The largest players will always be U.S. incumbents."

Mistral itself said bringing its technology to Microsoft's Azure is part of its mission "to foster the adoption of generative AI by as many people as possible." Making it available "across all distribution platforms will not only enable this adoption but will help guarantee the independence of our company."

In France, the reaction to Mistral's move has been muted or even supportive. Finance and Economy Minister Bruno Le Maire posted a cheerleading tweet for Mistral's new conversational robot without addressing the Microsoft deal.

In an interview with La Tribune, French Digital Minister Marina Ferrari said that "we should be ... delighted" by the deal, which gives Mistral a shot at becoming "a true alternative" for OpenAI.