Google pays $2.7 Billion for Character.AI - The AI Podcast

Summary

The AI Podcast: Google Pays $2.7 Billion for Character.AI

Episode Release Date: February 17, 2025

Introduction to the Acquisition

In this episode of The AI Podcast, the host delves into Google's monumental move to license the technology of Character.AI for a staggering $2.7 billion. This strategic decision mirrors similar tactics employed by industry giants like Microsoft, where outright acquisitions face significant regulatory hurdles, especially in regions like the United States and the European Union. Instead of a traditional acquisition, Google's approach combines a licensing deal with talent acquisition, ensuring they secure both the technology and the expertise behind Character.AI.

Speaker A [02:15]: "Google has been doing the same thing that Microsoft and others have been doing, but $2.7 billion in a licensing deal for Character AI. This is an absolutely insane story."

Understanding the Licensing vs. Acquisition Strategy

The host explains that while the deal is technically a licensing agreement, it effectively functions as an acquisition. Part of the agreement requires Noam Shazier, the founder of Character.AI, along with his core team, to transition to Google. This mirrors Microsoft's strategy with Mustafa Suleyman from Inflection AI, highlighting a broader industry trend where companies navigate regulatory landscapes by structuring deals that retain top talent and innovative technology without triggering acquisition red flags.

Speaker A [05:40]: "It's a classic acquisition move, right? They license, they get all the technology and the team, but it's not technically an acquisition."

Background on Noam Shazier and Character.AI

Noam Shazier, a key figure in this narrative, has a rich history with Google. As one of the company's first few hundred employees back in 2000, Shazier was instrumental in early AI developments. However, in 2021, he departed from Google after a disagreement over the release of a chatbot he co-developed with Daniel Defretis. This chatbot, named Mina, was a precursor to modern conversational AI like ChatGPT, capable of answering a wide array of questions across diverse topics.

In a bold assertion, Shazier predicted that Mina would "replace Google search engine" due to its advanced capabilities. However, Google executives, wary of the potential risks related to safety and fairness, decided not to proceed with its release. This decision is now being reevaluated in light of OpenAI's success and the growing prominence of AI-driven search and conversational tools.

Speaker A [12:30]: "According to the Journal, Shazir was so confident in the abilities of this chatbot Mina... he said his prediction was that it was going to replace Google search engine."

Character.AI's Rise and Google's Strategic Interest

After leaving Google, Shazier, along with his colleague Defretis, founded Character.AI, which quickly ascended to a billion-dollar valuation. By the time of the acquisition, the platform boasted over 20 million monthly active users, positioning it as a significant player in the consumer AI space, albeit still trailing behind OpenAI's reported 200 million monthly active users.

Character.AI distinguishes itself by allowing users to interact with chatbots modeled after historical figures like Leonardo da Vinci, fostering a more personalized and engaging user experience. Despite lacking some of OpenAI's expansive features, such as image generation and extensive API integrations, Character.AI's strong user base and innovative approach made it an attractive asset for Google.

Speaker A [18:50]: "Character AI is like a tenth of the size of OpenAI... but for this, Google decided it was worth $2.7 billion."

Google's Vision for AGI and the Talent War

Google's primary motivation behind this hefty investment appears to be focused on acquiring top talent to spearhead their ambitions in Artificial General Intelligence (AGI). With Noam Shazier at the helm, Google aims to bolster its AI models, particularly enhancing their Gemini AI platform to compete more effectively with ChatGPT and other leading AI systems.

The host references Eric Schmidt, Google's former CEO, who had long held confidence in Shazier's ability to develop human-like intelligence in AI models. Schmidt's endorsement, dating back to a 2015 talk at Stanford University, underscores the strategic importance Google places on Shazier's expertise.

Speaker A [25:20]: "Eric Schmidt... said he's convinced that Shazir was going to be the right person that could build an AI model that could operate with human-like intelligence, aka AGI."

This acquisition underscores the intensifying talent war in Silicon Valley, with major players like Mark Zuckerberg and Sergey Brin personally reaching out to lure top AI talent. Google's capacity to offer substantial financial incentives, as evidenced by this deal, gives it a competitive edge in securing the brightest minds in the field.

Speaker A [30:10]: "The talent war is really heating up in Silicon Valley right now... Mark Zuckerberg and Sergey Brin... are personally writing notes to different recruits."

Implications for Google's AI Ecosystem

By integrating Character.AI's technology and team, Google is poised to significantly enhance its AI offerings. The potential synergy between Character.AI's conversational prowess and Google's Gemini AI could lead to more sophisticated and user-friendly AI services, bridging the gap between search and interactive AI assistance.

This move also reflects a broader industry trend where established tech giants are aggressively positioning themselves to lead the next wave of AI innovation, ensuring they remain at the forefront of technological advancements and maintain their competitive edge in the rapidly evolving AI landscape.

Speaker A [35:45]: "He's going to be building their, essentially their AGI... The next generation should be incredible."

Conclusion and Future Outlook

Google's strategic licensing deal with Character.AI represents a significant milestone in the AI industry's competitive dynamics. By securing both the innovative technology and the visionary leader behind Character.AI, Google is laying the groundwork for future advancements in AGI. This move not only reinforces Google's commitment to AI excellence but also signals the company's readiness to adapt and lead in an era where AI continues to redefine technological boundaries and user expectations.

As the AI landscape continues to evolve, all eyes will be on Google to see how this acquisition influences their AI strategies and how it positions them against formidable competitors like OpenAI and Microsoft in the quest for AI supremacy.

Speaker A [40:00]: "Don't sleep on Google and everything they're doing right now. This kind of acquisition... absolutely phenomenal."

Note: The host frequently promotes the AI Hustle School community, offering exclusive content and strategies for monetizing AI tools. While these segments are integral to the podcast's broader mission, they serve as promotional content and were therefore selectively referenced in this summary.

Transcript

A (0:00)

Google has just paid $2.7 billion to acquire an AI startup. This one I think will blow your mind. I've been super excited. And it's also very interesting the way this acquisition, because it's not actually an acquisition, it's technically they're licensing the startups technology. And the reason for this is of course, because right now the regulatory environment is such that you can't really acquire companies without it all getting blocked by some sort of regulatory agency, whether in the United States or in the eu. It's just kind of crazy right now. So Google's been doing the same thing that Microsoft and others have been doing, but $2.7 billion in a aqua Hire and a licensing deal for Character AI. This is an absolutely insane story. I want to get into all of it because there's so much to this backstory. I wasn't aware of why they're paying this much money, the history of the founder over at Google, we're going to get into all of it. But. But the first thing I wanted to tell you is that if you've ever wanted to make money with AI tools or use AI to help grow your current business or to start side hustles to essentially make more money, I have a school community that is all about that. Every single week, my co host of the AI Hustle podcast, Jamie and I, we record exclusive content, breaking down the exact strategies, tools we're using and ways we're making money. Exactly how much money we're making. Uh, we share the exact products that we're doing, exact techniques, everything that I can't really share in the open because sometimes it's, you know, sort of, I don't know, confidential or I don't know. I don't publish it publicly, so I put it in this group. If you're interested in joining, we'd love to have you. It is $19 a month. In the future, this will be $100 a month to join this community, but right now it is a fraction of that. So if you're interested, this is the week to join. We'd love to have you in as part of the journey if you're interested in making money or growing your business with AI. So let's get back to character AI. Here's what's really interesting. So Google, they're paying $2.7 billion. You know, technically this is a licensing deal, but at the same time, technically part of the deal is that Noam Shazier, who is the founder of Character AI, he's 48 years old, he's a software engineer. He has to come over with his core team of character AI and work at Google. So this is a classic acquisition move, right? They license, they get all the, they get all the technology acquisition, they get the team. Well, in this case, technically they just get to license all the technology and license it exclusively and they get the team, but it's not an acquisition, it's a licensing deal. So I don't know. Kind of funny, this is exactly what Microsoft did with inflections pie when they grabbed Mustafa Sulaiman over to head up their Microsoft AI. And so yeah, this is, this is a very, very interesting move, but it's the same thing that we're seeing. So who is Noam Shazir? Why is he so important and why is he worth $2.7 billion for character AI and his team? So Noam Shazir, he first was hired as at Google as one of their very first, their few hundred employees that they ever had back in 2000. He was one of the first ones and he left the company in 2021 because they refused to release a chatbot that he had developed with one of his colleagues, who is Daniel defrettis. So this is an important piece of information in this whole story. Pretty much he was developing something and back in 2017 is, I think really when he kind of got started on this, he made this amazing chatbot. This kind of just goes to the whole theory that like Google already had chat GPT way before chatGPT or OpenAI did, but they were just worried about releasing it. So apparently back in 2017, he created this and it was called Mina. It was a chatbot that could essentially answer a ton of different questions on a ton of different topics. Sim very similar to ChatGPT. According to the Journal, Shazir was so confident in the abilities of this chatbot Mina and its utility that he said his prediction was that it was going to replace Google search engine. So how did Google executives take this, you know, prediction of their search engine being replaced back in 2017? They did not like it. They thought it was too risky. They had concerns about safety, they had concerns about fairness. And due to all of this, they canned this whole thing. They said, no way, we're not. You can't release this thing. I also have to imagine that part of that was, you know, they didn't want to be disrupted. Now it's interesting because it's the classic innovators dilemma issue where they didn't want their, their business to be completely disrupted. So instead they sat around and Then now they're being disrupted by OpenAI and perplexity. But another interesting, like I guess thought on all of this is back in 2017 to, you know, 2000 and let's say 2003 is when they really started to feel the heat of OpenAI and Perplexity and some of these other tools. I don't know, maybe making Google feel the pain a little bit. Sure, it happened in 2022, but I feel like, I feel like 2023 is when this really kind of started to compound and they had to have like a response to this. So if you think about it, from 2017 to 2023, that's six full years where, you know, Google makes a ton of money. And so if Google's cranking out, you know, money for every single year, I think their annual revenue in their most recent was $278 billion. So you have to assume. And then I guess 2021 was 250. So yeah, I mean if they're making like a quarter of a trillion dollars a year, they don't want to be disrupted in the six years. I mean, I know that their revenue has grown. I'm talking about the most recent years. So this is definitely not exact, it's probably a little bit lower than this, but over the last six years it'd be about $1.5 trillion, probably a trillion dollars that they have made in revenue over the last six years. So like that could also be a big thing. It's Google was kind of in this hard place where they were like slow rolling this innovation because sure it was innovative and incredible, but like they rolled it out, it was going to have a direct negative impact on their ad revenue. And unless they figured out a way to I guess incorporate ads into the AI, which to be honest, I think perplexity has shown that this is very doable. Now that perplexity does it. But I just feel like when you see perplexity, you see the way that they give the results. It seems doable that they could put ads into these AI models and probably have solved that problem. So in any case, Noam was very, had a big tiff about this. He left the company in 2021 because they refused to do it. He created something incredible and he went over with defreitas and they went and founded Character AI which grew and became one of the most popular AI startups in Silicon Valley. They reached a billion dollar valuation last year. And I believe that when this whole deal went through, when Google just closed this whole deal with character AI, they had more than 20 million monthly active users. So very, very popular tool. It's interesting because, uh, OpenAI has reported that, I think in their last report they reported that they had 200 million monthly active users. So Character AI is like a tenth of the size of OpenAI, which is like the big AI company that everyone knows and uses and has every sort of like corporate integration, whereas character AI is just sort of used much more of a consumer. And I think a lot of like high school kids and different people are using this. So it's not, you know, it's like you could go talk to Leonardo da Vinci on character AI and other like people like that. People are making chatbots. So this definitely isn't, you know, this isn't the same technology that OpenAI is doing. It doesn't have all these APIs, it doesn't have image generation, all these crazy things per SE that OpenAI does. But it has a tenth of its monthly active users. So to me, very, very impressive. And for this, Google decided It was worth 2 point, almost 3 billion. So why, you know, why does Google want to buy this? The thinking is essentially Google is going to take Noam and use him to build AGI inside of Google. He's going to be their lead, sort of like Microsoft. Mustafa Sullivan, this is Google's guy, he started in Google, he created something incredible. He left, launched it in the real world. It got incredibly popular. I'd be so curious to see Google Gemini's, you know, usage metrics compared to this tool because it might be comparable right in, I guess people just opting to use it other than Google Gemini showing results that are just kind of forced to the top of a search. But people actually going to use Gemini, I'd be curious to see what that number is versus this. They might be comparable. So they're pulling them back in, they license the technology. So they essentially own that now, which technically means if they, if they powered character AI by Gemini, that's 20 million monthly active users that Gemini would bump. Which looks great for Google, probably looks great on the reports. But anyways, is that really the reason? Are they just trying to bump their numbers? No, I think it's a talent play. Eric Schmidt, who is the former CEO of Google, he has always been very impressed with Shazir and he said that he was convinced, he was talking to the Journal and he said he's convinced that Shazir was going to be the right person that could build an AI model that could operate with human like intelligence, aka AGI and back. He said this in 2015 at Stanford University, in a talk he said, quote, if there's anybody I can think of in the world who's likely to do it, it's going to be him. So obviously Eric Schmidt was incredibly impressed, believed this guy was the guy to take Google to the next level. They lost him. This is probably a travesty at the company. They're probably really bummed about it. But Google is a massive company making insane amounts of money. They can reel people back in, which is interesting because it's something that maybe other AI startups or other startups don't have. The power, is that the power of just pure money that Google can use to pull people back in? So he's coming back in and he's going to be building their, essentially their AGI. What's interesting here is Shazir himself personally with this deal is going to be making hundreds of millions of dollars in this transaction. Obviously there was investors in character AI and yada yada, all of that, but, but he is going to be making hundreds of millions of dollars coming over to Google and he's going to be one of three people who are going to lead the Google's efforts to essentially build the next version of their Gemini AI model. So essentially the goal is for this to compete with ChatGPT because right now Gemini does some cool stuff, but it's not really, I would say it's not the name, the, you know, the name that everyone's like, oh yeah, I use Gemini to go answer this or that. It's kind of like anthropics Claude or ChatGPT or even Meta AI because it's kind of embedded into everything. So it's going to be interesting to see where that plays out. Google Gemini is obviously a powerful tool. The next generation should be incredible. They've had some controversies, but I think they're going to be pulling some impressive stuff out. So very interesting to see where this goes. I think the talent war is really heating up in Silicon Valley right now. We're having people like, you know, Mark Zuckerberg and Sergi Brin, the co founder of Google, they're personally writing notes to different recruits telling them to come and join their companies. So this is getting very competitive and it's going to be very interesting to see who has the most money or the most sway and is able to pull people into their company. But I would definitely not sleep on Google and everything they're doing right now. And this kind of acquisition, slash, licensing deal for $2.7 billion absolutely phenomenal. If you are interested in making money from AI and you're looking at ways to monetize it, I I would love to have you in the AI Hustle School community. The link is in the description. It's a phenomenal community. We learn a ton. There's exclusive content there you won't find anywhere else. And it's exactly how I am personally monetizing and making money from AI. So thanks so much for tuning into the podcast today. Hope you enjoyed it. Make sure to join our community if you're interested and I will catch you next time.