AI wars: OpenAI cuts ties with Scale AI days after Meta’s $14.3 billion investment 

ChatGPT owner OpenAI is halting its partnership with data-labelling startup Scale AI, days after Meta Platforms Inc. invested billions of dollars in the startup and hired its co-founder and some employees.

According to reports, Scale holds a small fraction of OpenAI’s overall data needs, though the tech giant has been in the process of reducing its dependence on Scale before the Meta deal. The ChatGPT maker has been seeking other AI providers for more specialised data needed to support increasingly advanced artificial intelligence models.

When the conversation about its deal with Scale emanated days ago, OpenAI said the company would continue working with Scale AI as one of many vendors.

Recall that the Facebook and WhatsApp parent company invested $14.3 billion in Scale with a 49% stake. As part of the deal, its CEO and co-founder, Alexandr Wang, alongside few of the startup’s employees will join Meta to play a prominent role in its artificial intelligence strategy.

In May 2024, the startup was valued at nearly $14 billion in a funding round that included Nvidia, Amazon, and Meta. The Meta investment now values the company at $29 billion.

Considering its partnership with Meta rivals in AI advancement, experts had warned that the deal might not be all good for Scale’s reputation. They noted that many AI labs that are clients of Scale could decide to discontinue using their services if they were to worry. With that, they might feel since Wang still sits on Scale’s board, Meta might obtain an inside track into rivals’ priorities around data.

Also Read: Meta set to depeen its AI expansion with $14.3 billion investment in Scale AI.

Troubles for Scale with OpenAI and Google’s partnership exit

As a matter of concern, companies that compete with Meta in developing cutting-edge AI models are concerned that doing business with Scale could expose their research blueprint to a rival.  

By collaborating with Scale AI, customers often share proprietary data as well as prototype products for which the startup’s employees are providing data-labelling services. With Meta now taking a 49% stake, AI companies are concerned that one of their chief rivals could gain knowledge about their business strategy and technical blueprints.

While Meta’s substantial investment in Scale is structured to elevate its AI research workflow, acquiring its CEO poses a threat to other rivals in the AI race, such as OpenAI and Google, who hold a partnership with the startup.

Recognised as one of Silicon Valley’s most promising entrepreneurs, Wang has built relationships with top tech executives such as OpenAI CEO Sam Altman and has leveraged his influence to build connections in the U.S. Capitol, including a partnership with the federal government as a big client. 

“As you’ve probably gathered from recent news, opportunities of this magnitude often come at a cost. In this instance, that cost is my departure. It has been the absolute greatest pleasure of my life to serve as your CEO,” Wang wrote in the memo that he shared on X while announcing his departure.

As the move represents a significant win for Wang, it pictures an opposite scenario for the startup he co-founded in 2016.

Another tech giant, Google, revealed plans to cut ties with Scale days ago. Google, the largest customer of the data-labelling startup, had planned to pay Scale AI about $200 million this year for the human-labelled training data that is crucial for developing technology, including the sophisticated AI models that power Gemini, its ChatGPT competitor.

Reports claimed that Scale AI saw $870 million in revenue in 2024, largely attributed to Google’s $150 million investment in Scale AI’s services.

Following Google and OpenAI’s planned exit, other major tech companies that are customers of Scale, including Elon Musk’s xAI and Microsoft, are also looking to follow suit 

Amid the unpleasant development, a Scale AI spokesperson said its business, which spans work with major companies and governments, remains strong and committed to protecting customer data.