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Character.ai is attempting to get well from Google poaching its founders in a $2.7 billion deal by specializing in improving its consumer products quite than developing AI models as concern grows , that Big Tech will stifle competition from rival startups.
Dominic Perella, the corporate's latest interim chief executive, told the Financial Times that the San Francisco-based startup has largely given up the race to develop large language models against better-funded rivals reminiscent of Microsoft-backed OpenAI, Amazon and Google.
Instead, three-year-old company Character.ai will deal with its popular consumer product: chatbots that simulate conversations within the type of various characters and celebrities, including those designed by users.
“It became incredibly expensive to coach boundary models.” . . This is incredibly difficult to finance even with a really large start-up budget,” Perrella said in his first interview since taking office in August.
“Our consumer products have been incredibly well received, and there was a little bit of a divide throughout the company between individuals who desired to deal with training probably the most advanced models possible and other people who got here from the buyer space and saw the success of this product.”
Character.ai's pivot follows an identical path to other startups, reminiscent of German company Aleph Alpha, which has abandoned its ambitions to construct LLMs given the massive costs related to developing the technology.
This has led to concerns that Big Tech corporations are dominating the nascent but emerging AI sector. Global regulators are increasingly scrutinizing deals like Microsoft's $13 billion alliance with OpenAI.
Microsoft's $650 million deal in March to rent Inflection boss Mustafa Suleyman and other employees on the startup drew attention from Britain's competition regulator as a “merger case” but was later cleared. Amazon's so-called “acquisition” of executives at Adept has also drawn FTC scrutiny.
In August, Google hired 20 percent of Character.ai's employees to hitch its AI arm DeepMind, paying $2.7 billion for a one-time license for the startup's models, which didn’t have access on the time to future technologies, as people accustomed to the deal report.
As a part of the deal, Google rehired Character co-founders Noam Shazeer and Daniel De Freitas. The pair had previously left the search giant after it refused to release its AI-powered chatbot. Shazeer can be one in all eight Google scientists who co-wrote a paper on the “Transformer” language processing architecture that sparked the generative AI revolution.
“Character.ai's concern is that the things it does could be easily imitated by large technology corporations with financial clout and huge global reach,” said Jamie MacEwan, an analyst at Enders Analysis. “These star founders were the industry’s biggest selling point. Without them, I’m unsure the corporate can maintain its technological edge.”
Character.ai has previously received takeover interest, including from Facebook and Instagram owner Meta, and was valued at $1 billion last yr in a funding round led by Andreessen Horowitz.
Perella is confident that the Google deal is not going to raise antitrust concerns as the corporate plans to operate in the identical market. “We proceed to do AI research,” he said. “We still own all of our technology, have just about all of our employees, and we proceed to grow.”
With the $2.7 billion from the Google transaction, Character.ai bought out its investors and distributed ownership of the corporate in a cooperative amongst employees, a “very unique structure that could be unheard of in Silicon Valley.” said Perella. According to an individual with knowledge of the corporate's funds, the interim chief's stake is lower than 10 percent, and employees also received a one-time payout.
The deal also gives the startup enough money to operate for 18 months, Perella said, adding that in the long run the corporate will likely look to lift money from enterprise capital and pursue similar licensing agreements with other corporations.
Around 30 employees went to Google in consequence of the transaction, and around 100 remain. Character.ai also recently laid off 10 individuals who Perella said were now not essential to the corporate, reminiscent of recruiters who specialized in hiring engineers to coach base models.
Character.ai also poached Erin Teague as its latest chief product officer from Google, where she worked as a product manager for AI product Gemini and YouTube.
Character.ai has a monthly energetic user base of 20 million that has doubled yr over yr, with the bulk being younger users ages 13 to 25, Perella said. The foremost revenue comes from subscriptions, which only represent a small percentage of users.
“Over the previous few weeks we now have been focused on the mission of making the subsequent big platform and using AI to power it and using our secret sauce to power it,” he added.
