Google has rehired Noam Shazeer and Daniel De Freitas, the co-founders of Character.AI, along with a team of approximately 30 researchers. This strategic reintegration into Google DeepMind signals a broader trend of major tech companies absorbing innovative AI startups by hiring their talent rather than outright acquisitions.
Character.AI, founded in 2021 by Shazeer and De Freitas after leaving Google, rapidly became one of the most notable consumer AI startups. The company, backed by Andreessen Horowitz (a16z), developed a custom chatbot platform that garnered millions of users. These bots collectively handle about 20% of Google Search’s query volume, underscoring the platform’s significant user engagement and technical prowess.
Despite its success, Character.AI faced challenges, including the high costs of developing proprietary AI models amidst the rise of open-source alternatives. The company’s financial sustainability was under pressure, with subscription revenue falling short of covering expenses. Consequently, talks of raising additional funding or exploring acquisition options emerged, with informal discussions reportedly involving major tech figures like Mark Zuckerberg and Elon Musk.
The return of Shazeer and De Freitas to Google DeepMind, along with their research team, involves a non-exclusive licensing agreement rather than an acquisition. Google will leverage Character.AI’s foundational models, providing funding to support Character.AI’s continued operations. Employees with vested shares will receive payments based on a $2.5 billion valuation, reflecting the value placed on Character.AI’s technology and talent.
Shazeer, a renowned AI researcher and co-author of the seminal "Attention is All You Need" paper, expressed enthusiasm about rejoining Google. He acknowledged the achievements at Character.AI and expressed confidence in the company's future success bolstered by the new funding and ongoing efforts of the remaining team.
The AI landscape has evolved significantly since Character.AI's inception. The proliferation of pre-trained models has made it more practical for startups to use third-party models, allowing them to focus resources on post-training and product development. This shift in strategy is evident in Character.AI’s approach, as highlighted in their blog post announcing the founders' return to Google.
The move to rehire key AI talent instead of pursuing traditional acquisitions helps tech giants like Google navigate regulatory scrutiny. Recent investigations by regulatory bodies such as the Federal Trade Commission (FTC) and the UK’s Competition and Markets Authority (CMA) have scrutinized similar “reverse acqui-hires” to ensure compliance with antitrust laws. By avoiding a full acquisition, Google mitigates the risk of prolonged regulatory reviews that could potentially block the deal.
The agreement positions Character.AI for continued growth, with interim CEO Dominic Perella at the helm while a search for a permanent CEO is underway. Google’s funding and the non-exclusive licensing deal provide a financial cushion, allowing Character.AI to innovate and expand its AI products.
For Google DeepMind, reintegrating Shazeer and his team aligns with their goals of accelerating progress in AI research and development. As Google DeepMind continues to work on projects like Gemini, the expertise and foundational models brought in by the Character.AI team are expected to play a crucial role.