On Friday, Google reached a substantial licensing agreement with Character AI which included the hiring of Character AI’s co-founders, Noam Shazeer and Daniel De Freitas, along with several key researchers from the startup. In an abridged op-ed, Charles Benaiah outlines the ramifications. TL:DR: They could be huge. Scrap that, they will be huge.
Instagram began life like many startups, with a How It Works story on a startup media site. It got quirky mainstream press about becoming a voyeur. Then, at the eight month mark, Justin Bieber posted a picture on the platform and blew up the Internet.
Instagram wasn’t just a hit, it was Star Wars, Harry Potter, and Marvel’s entire MCU blockbusters rolled into one. Still Instagram made no money and could easily end up on the scrapheap of social platforms and tech companies that go big and go home.
A few months later, Mark Zuckerberg was in the midst of taking Facebook public. The market was going to value Facebook at $100B. Zuck offered Kevin and Mike $1B for Instagram.
Most outlets focused on the boring numbers stuff and the absurdity of paying $1B for a business with twenty plus million users and no revenue. On the other hand, Forbes put it like this, “Zuckerberg is playing chess, making a defining move in how it stands in the photo space. It’s like what Google did with YouTube.”
Zuckerberg saw something in Instagram others couldn’t see. Phones with cameras were introducing a new mass media format. Mobile was going to be bigger than desktop. Bandwidth changed the bounds of distribution.
Facebook shared tiny, grainy pictures on desktops. Yes, they could build an Instagram. But, quote, there are some thing money can’t buy, unquote.
A younger demographic loved Instagram. Younger demos start long-term trends. Even Mark Zuckerberg’s company can’t buy a young, enthusiastic audience.
But he did. He paid what most people thought was a gargantuan price for Instagram. And he leveraged Facebook’s scale and its nearly unparalleled ad tech to create the world’s most dominant and defensible social platform. That deal turned Google’s monopoly into an advertising duopoly.
Yeah, so? There are lots of great stories. Why tell this one? Why tell it now?
ON FRIDAY NIGHT, GOOGLE BOUGHT CHARACTER AI.
Google paid $3B for a company with 20 million users and no revenue. And, here’s the crazy part. They don’t care about either. Mr. Beast’s channel on Google’s YouTube has 5x more users than Character AI. This is chess.
Forty days ago, I wrote this, “Character AI might be Facebook.”
AI, especially generative AI is introducing a new mass media format. AI is going to power search. Computing power is making it possible to chat with millions of people in real-time gathering enormous new data sets that will make the social graph look like a shoebox of old tax receipts.
Character’s premise is simple. People create bots to chat with people. There are Characters based on everyone from Aristotle to animes. Character chats go something like this:
Take a closer look at the last Character line. They introduced a YouTuber named Drew Gooden and explained his videos. That’s not a promoted line. Yet. But you can see where this goes.
Kids freaking LOVE this thing. Five days ago, I wrote this update, “People are spending two times more time chatting with these bots than watching YouTube. Yes, really.” Kids are waiting 30 to 60 minutes to chat with one of its bots. When they do, they spend 120 minutes chatting. Outside of TikTok’s dance craze, this is a kind of love we haven’t seen since Instagram.
Younger demos start long-term trends. Smart services are a long-term trend. I call them Smart Services because they create smart tech that turn generic AI into the things people love.
Google saw this. A week and a half ago, they said, they want, “chatbots that people can hang with… not just pelt questions at.” They aimed to build their own challenger to Character AI.
Google tried to build it. They failed. Google.
So, instead, Google paid 14 days profit for what could be the next YouTube or Facebook. Their next big platform. A platform that gives them the training data for Gemini. Something that means they can worry less about what happens if the next generation doesn’t love search. And, perhaps most importantly, the platform that ushers in the new ad format I’ve been droning on about — contextual conversational promotional. Like Facebook did when it brought its ad tech to Instagram’s audience, Google can bring ads to AI. To be clear, that means Google will determine what ads will be in the AI era.
I’m going to say that again,
GOOGLE WILL DETERMINE WHAT ADS WILL BE IN THE AI ERA.
You know who plays chess like Google? Google.
Charles Benaiah is the Founder of Fanter, the first AI for sports fans. When he’s not running a media company, he reads about media, thinks about it, pull out what’s left of his hair dealing with it, and, then, he writes about it over on Substack. Charles is a member of Media Makers Meet – Mx3 Collectif.
Editor’s note: Subsequent details over the weekend suggest that Google did not ‘acquire’ Character AI per se but signed a significant licensing agreement with the startup with the exact terms undisclosed. The deal allows Google to use Character AI’s large language model technology while Character AI continues to operate independently.
