The New Blueprint for Big Tech
It’s the new blueprint for Big Tech companies scrambling for dominance in artificial intelligence: Hire the cofounders of a high-profile AI startup along with some of its staff.
Google’s Recent Acquisition
The latest example came on Friday when Google announced that the cofounders of AI chatbot startup Character AI and some members of its research team would join its already substantial AI efforts. This mirrors what Microsoft did in March when it hired a significant portion of the workforce at AI startup Inflection, including CEO Mustafa Suleyman, and what Amazon did in June with AI company Adept.
Is the AI Startup Era Imploding?
If three is a trend, there is clearly something trendy happening in the world of AI startups—and it may not be these deals to absorb AI upstarts without actually buying them. Instead, it may be that the AI startup era itself, which has soared wildly for over two years, is beginning to implode.
Character AI’s Journey
Character AI started the very nascent AI chatbot craze when it debuted in 2022, cofounded by former Google researcher Noam Shazeer, who became the company’s CEO, and Daniel De Freitas, who was its president. Shazeer was one of the co-authors of the seminal research paper “Attention is All You Need,” which helped to launch the Transformers architecture underpinning OpenAI’s chatbot ChatGPT and other large language models.
Ambitions Beyond Entertainment
Character AI’s technology lets users chat and role play with real-life or fictional characters, from Queen Elizabeth to Draco Malfoy, or create customized AI companions. But Shazeer and De Freitas’ goal was never just providing AI entertainment. In 2022, the company showed its ambition in a blog post, asking, “What if you could create your own AI, and it was always available to help you with anything?”
Funding and Valuation Challenges
In March 2023, Character AI was among several LLM companies receiving eye-popping investments, securing a fresh $150 million in funding, led by Andreessen Horowitz, and achieving a valuation of $1 billion, despite having no revenue. In September 2023, Character AI was reportedly in talks for further funding—rumored to be from Google—at a valuation exceeding $5 billion, but that round never materialized.
Competition and Criticism
Meanwhile, Facebook-parent Meta debuted its own family of AI characters in October 2023, which it discontinued last week while introducing a feature that let users create their own. The list of AI companion startups continued to grow, with the New York Times’ Kevin Roose testing six different ones a few months ago, including Nomi, Kindroid, Replika, Candy.ai, EVA, and, yes, Character AI.
Industry Struggles
Character AI faced criticism early on for its lack of policing of its chatbots, allowing users to create chatbots based on controversial figures. After tightening its filters, critics questioned the wisdom of letting teens make friends with chatbots or use them as AI therapists.
The Future of AI Startups
Character AI is not alone in facing challenges in an industry that requires significant fundraising to survive, due to the massive cost of computing power to train AI models. Cohere, whose CEO Aidan Gomez was a co-author on the Transformers paper, recently raised a $500 million investment round amid questions about its revenue generation. In June, Paris-based Mistral AI raised $645 million at a $6 billion valuation, despite just beginning to generate modest revenue.
Big Tech’s Role
OpenAI and Anthropic are the two biggest LLM startup heavyweights. While they may have the strongest chance of achieving profitability, there are still questions about whether foundation model companies can ever make money. Recently, tech news site The Information reported that OpenAI is losing billions.
In conclusion, all roads lead back to Big Tech, which is providing a refuge to some top startup founders and employees. Microsoft provided one to Inflection’s Suleyman, who now leads Microsoft’s AI efforts. Amazon adopted the team at Adept. And now Shazeer and De Freitas are back at their own stomping grounds at the Googleplex. The AI model startup era may be shaky, but the quest for ever-more powerful AI models is unlikely to fade away with Big Tech racing to keep up in the AI wars.
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