Why Google paid $2.7 billion to reclaim its lost AI genius

In a powerful and strategic initiative, Google has invested $2.7 billion to bring Noam Shazeer and Daniel De Freitas, the founders of AI startup Character.AI, back to Google. The announcement in August not only licensed Google to Character.AI’s leading technology but also brought Shazeer and De Freitas back to Google, where they will focus on AI work, particularly the future AI model Gemini.

The background: From departure to return

Noam Shazeer, who initially joined Google in 2000 and later co-authored the groundbreaking AI paper “Attention Is All You Need,” left the company in 2021 after it refused to release a chatbot he and De Freitas had developed. Irritated by what he regarded as Google’s too-careful handling of AI, Shazeer quit to launch Character.AI. This startup swiftly rose to prominence for its cutting-edge chatbots that could mimic various personalities and fictional characters.

As of last year, Character.AI rapidly achieved a valuation of $1 billion. In any case, according to WSJ, the $2.7 billion agreement with Google has triggered that valuation to soar to $2.5 billion as part of a broad agreement that covers the buyout of shares held by existing investors and a non-exclusive licensing of Character.AI technology.

A strategic “Reverse acqui-hire”

This deal is more than just a licensing agreement; it represents a “reverse acqui-hire” strategy that has become increasingly common in the tech industry. By confirming Shazeer and De Freitas’s return, Google avoids the regulatory concerns that tend to arise with total acquisitions and still acquires superior talent. This technique illustrates the high-stakes rivalry in AI, revealing that having the best talent is important for sustaining a competitive advantage.

Dominic Perella, who was previously the general counsel, will take the position of interim CEO as Character.AI will remain independent. Even though the co-founders have gone back to Google, the startup’s existing product offerings will remain, and most of its talented team will stick around to progress Character.AI.

Returning to Google is considered a vital success for the organization, especially since Shazeer will be one of the top leaders directing Google’s strategy for creating the future of its AI technology, Gemini. Shazeer has emphasized his enthusiasm for getting back to Google, pointing to the possibilities for new developments enabled by the resources that are now in place.

The bigger picture: AI talent wars

Google’s commitment reflects the bigger trend of technology powerhouses eagerly taking on professional talent from successful AI startups to maintain a competitive advantage in the constantly developing AI field. Firms like Microsoft and Amazon have implemented uniform strategies by putting extensive investments into hiring key AI talent.

The agreement with Character.AI stands apart not only regarding its financial aspects but also because of the strategic importance of bringing Shazeer on board again, a professional who has repeatedly emphasized the promise of AI. Google’s campaign to lead the AI field will likely rely greatly on his expertise, especially in creating generative AI models.