Startup stops creating AI models after agreement with Google – 10/02/2024 – Tec

Character.ai is looking to bounce back after Google absorbed its founders in a $2.7 billion deal, focusing on improving its consumer products rather than building AI models ( artificial intelligence), as concerns grow that big tech companies will crush competition from rival startups.

Dominic Perella, the company’s new interim CEO, told the Financial Times that the startup has largely abandoned the race to build large language models against better-funded competitors such as Microsoft, Amazon and Google-backed OpenAI.

Instead, three-year-old Character.ai will focus on its popular consumer product, chatbots that simulate conversations in the style of various characters and celebrities, including those created by users.

“It has become ridiculously expensive to train cutting-edge models, which is extremely difficult to finance even with a very large startup budget,” Perella said in his first interview since taking the role in August.

“Our consumer products gained incredible traction, and there was a bit of a dichotomy within the company between people who wanted to focus on training the most advanced models possible and people who came from a consumer background of seeing this product take off.”

Character.ai’s shift in focus follows a similar path to that of other startups, such as Germany’s Aleph Alpha, which gave up ambitions to build LLMs given the enormous costs involved in developing the technology.

This has raised concerns that big tech companies are dominating the AI ​​sector. Global regulators have increasingly investigated agreements such as Microsoft’s US$13 billion (R$70.7 billion) alliance with OpenAI.

Microsoft’s $650 million deal in March to hire Inflection chief Mustafa Suleyman and other startup employees attracted the attention of the UK competition watchdog as a “merger situation “, but was later approved. Amazon’s so-called “acquisition” of Adept executives also alarmed the FTC.

In August, Google hired 20% of the Character.ai team to join its AI division, DeepMind, and paid $2.7 billion for a one-time license for the startup’s models at the time, without access to future technologies. , according to people familiar with the deal.

As part of the deal, Google rehired Character co-founders Noam Shazeer and Daniel De Freitas. The pair had previously left the search giant after the company refused to launch its AI-powered chatbot. Shazeer is also one of eight Google scientists who co-wrote a paper on the “transformer” architecture for language processing that kicked off the generative AI revolution.

“The concern for Character.ai is that the things it is doing could be easily replicated by large technology companies with financial power and huge global reach,” said Jamie MacEwan, analyst at Enders Analysis. “These star founders were its biggest selling point in the industry, I’m not sure without them it can pretend to maintain a technological edge.”

Character.ai has previously received acquisition interest, including from Facebook and Instagram owner Meta, and last year was valued at US$1 billion (R$5.4 billion) in a funding round led by Andreessen Horowitz.

Perella is hopeful that the Google deal will not raise antitrust concerns, as it plans to operate in the same market. “We continue to do research in AI,” he said. “We still have all of our technology, we have almost all of our people, and we continue to grow.”

With the $2.7 billion from the Google deal, Character.ai bought out its investors and distributed ownership of the company among employees in a cooperative, a “very unique and perhaps unprecedented structure in Silicon Valley,” Perella said. . The interim CEO’s stake is less than 10%, according to a person with knowledge of the company’s finances, and employees have also received payments.

The deal also left the startup with enough cash to operate for 18 months, Perella said, adding that the company will likely look to raise venture capital money in the future and pursue similar licensing deals with other companies.

About 30 employees left for Google as part of the transaction, while about 100 remain. Character.ai also recently laid off 10 people who Perella said were no longer needed by the business, such as recruiters who specialize in hiring engineers who train base models.

Character.ai has also hired Erin Teague as its new chief product officer, joining from Google, where she worked as a product manager on the AI ​​project Gemini and YouTube.

Character.ai has a monthly active user base of 20 million, which has doubled year-over-year, with a predominantly young user base of 13 to 25 years old, Perella said. Its main line of revenue comes from subscriptions, which represent a small percentage of users.