Amazon's latest AI acquisition: A possible regulatory red flag?

Amazon has just snatched three of the founders of AI startup Covariant.

The company develops AI technology that is used in advanced warehouse robotics systems, which can change the foundations of Amazon’s business.

As a result of the hiring of the three co-founders, Amazon will get non-exclusive rights to use the startup’s AI models.

The co-founders include former OpenAI researchers Pieter Abbeel, Rocky Duan, and Peter Chen. 25% of the company’s employees are also expected to join Amazon as part of the arrangement.

Deceiving the regulators?

Arrangements like the one with Covariant have become quite common in the tech industry lately.

Amazon itself hired the founders of Adept, an AI startup that helps automate enterprise workflows. One-third of Adept’s employees joined Amazon as the company signed a licensing deal with them.

Microsoft pulled off the same act earlier in the year when it hired the co-founder of Inflection AI, a consumer chatbot startup. Like Amazon, it also brought in some of the employees of the company.

Regulators are noticing this new trend and Amazon also received a notice from the Federal Trade Commission last month to explain its arrangement with Adept.

Sooner or later, the regulators will not only start asking the tough questions but may also outright ban such deals.

However, AI developments are happening way faster than any regulatory authority can properly track. Bureaucracy moves slow, and the tech companies know that.

By the time these deals are questioned, Amazon and other tech companies will already have utilized them in a way that a potential reversal of these arrangements won’t affect the business as much.

What the deal means for Amazon?

Amazon first moved into warehouse robotics when it acquired Kiva Systems over a decade ago. Since then, the company has continuously improved its processes including sorting, moving, and processing packages in its warehouses.

The arrival of AI has meant that the tech can be integrated into these systems to further improve their efficiency.

This is where Covariant comes in. The existing robots can now learn using AI systems, which should help the company improve the workflow at its fulfilment centers.

Covariant’s models will help drive new ways to generalize how our robotic systems learn and provide dynamic opportunities for how we use automation to make our operations safer and better delivered for customers.

Amazon hasn’t yet disclosed the financial terms of the deal. Covariant was most recently valued at $625 million when it raised $222 million last year.

For a giant like Amazon, the financial aspect won’t matter much at the current valuation. What does matter is the financial impact this will have on the company’s business. 

If Amazon's track record is anything to go by, they have been able to turn high capex into cash flows successfully in the past two decades.

This deal doesn’t even involve any major capex and could start delivering financial impact even before regulators catch up with the latest industry tricks.