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Character.ai is looking to rebound after Google poached its founders in a $2.7 billion deal by focusing on innovating consumer products instead of building AI models , as concerns grow that Big Tech will crush competition from rival startups.
Dominic Perella, the company’s new interim chief executive, told the Financial Times that the company is headquartered in San Francisco. startup has largely given up the race to build large language models against better-funded rivals such as OpenAI, Amazon and Microsoft-backed Google.
Three-year-old Character.ai will instead focus on its popular consumer product, a chatbot that simulates conversations in the style of various characters and celebrities, including chats designed by users.
“Training avant-garde models has become extremely expensive. . . This was extremely difficult to fund given the startup’s huge budget, Perrella said in his first interview since taking on the role in August.
“Our consumer products have incredible traction, and within your company there’s a bit of a dichotomy between people who want to focus on training the most advanced models possible and people who come from the ground up. consumers see this product succeed.”
Character.ai’s pivot follows a similar path to other startups, such as Germany’s Aleph Alpha, which abandoned its ambitions to build an LLM due to the huge costs of developing the technology.
That’s led to concerns that Big Tech companies are dominating the nascent but growing field of AI. Global regulators are increasingly looking at deals like Microsoft’s $13 billion alliance with OpenAI.
650 million USD from Microsoft deal in March The hiring of Inflection director Mustafa Suleyman and other staff from the startup attracted attention from the UK’s competition regulator as a “merger situation” but was later resolved. Amazon’s so-called “rehiring” of executives at Adept has also drawn FTC scrutiny.
In August, Google hired 20% of Character.ai’s employees to join its AI arm DeepMind and paid $2.7 billion for a one-time license to startups that at the time didn’t have access. into future technologies, according to people familiar. with agreement.
As part of the deal, Google has hired Character co-founders Noam Shazeer and Daniel De Freitas. The pair previously left the search giant after it refused to release an AI-powered chatbot. Shazeer was also one of eight Google scientists who co-wrote a paper on a “transformer” architecture for language processing, kicking off the general AI revolution.
Jamie MacEwan, analyst at Enders Analysis, said: “The worry for Character.ai is that what it is doing could easily be copied by big tech companies with the financial and criminal firepower. broad global reach”. “Those star founders are its biggest selling point in the industry. I’m not sure if without them it can pretend to hold a technological advantage.”
Character.ai has previously received takeover interest including from Facebook and Instagram owner Meta, and last year was valued at $1 billion in a funding round led by Andreessen Horowitz.
Perella hopes the deal with Google won’t raise antitrust concerns because it plans to operate in the same market. “We are continuing to work on AI,” he said. “We still own all the technology, have almost all the people, and we’re continuing to grow.”
With $2.7 billion from the Google deal, Character.ai bought out its investors and divided ownership of the company among employees in a cooperative, a “structure,” Perella said. very unique and possibly never seen before in Silicon Valley.” The interim chief executive’s stake is less than 10% and employees also receive a one-time payment, according to a person familiar with the company’s finances.
The deal also gives the startup enough money to operate for 18 months, Perella said, adding that the company will likely look to raise money from venture capital in the future and find Seek similar licensing agreements with other companies.
About 30 employees went to Google as part of the transaction while about 100 remain. Character.ai also recently laid off 10 people who Perella said were no longer essential to the business, such as recruiters specializing in hiring junior modeling training engineers.
Character.ai has also tapped Erin Teague as the new product manager at Google, where she serves as product manager for AI product Gemini and on YouTube.
Perella said Character.ai has a monthly active user base of 20 million, which has doubled year-over-year, with a predominantly younger user base aged 13-25. Perella said. Its main source of revenue is from subscriptions, which account for a small percentage of users.
He added: “Over the past few weeks, we have been together on a mission to create the next big platform and use AI to power it and use our secret sauce to provide power it”.
