Alphabet’s Google explores significant investment in chatbot startup Character.AI

In a move to further strengthen its foothold in the artificial intelligence (AI) landscape, Google, a subsidiary of Alphabet Inc., is reportedly in advanced discussions to inject hundreds of millions of dollars into Character.AI, a burgeoning AI chatbot startup. 

The potential investment may take the form of convertible notes, forming an even deeper collaboration between Google and Character. AI. The existing partnership involves Character.AI utilizing Google's cloud services and tensor processing units (TPUs) for training its AI models.

Founded by former Google employees Noam Shazeer and Daniel De Freitas, Character.AI has garnered attention by enabling users to engage in virtual conversations with celebrities such as Billie Eilish or animated characters. The platform also enables users to form their own chatbots and AI assistants. While the service is free, Character.AI offers a subscription model priced at $9.99 per month, allowing users to bypass virtual lines for immediate access to a chatbot.

Character.AI's diverse range of chatbots, offering various roles and tones, has resonated particularly well with users aged 18 to 24, contributing to approximately 60% of the website's traffic, as indicated by Similarweb data. This demographic positioning sets the company apart as a provider of entertaining and personalized AI companions, differentiating itself from other AI chatbots such as OpenAI's ChatGPT and Google's Bard.

The startup has experienced significant traction, with the company reporting 100 million monthly visits to its website within the first six months since launch. In addition to the potential investment from Google, Character.AI is reportedly in talks with venture capital investors to secure equity funding, a move that could potentially value the company at over $5 billion. In March 2023, the startup raised $150 million in a funding round led by Andreessen Horowitz, achieving a valuation of $1 billion.

While discussions with Google are ongoing, sources caution that the terms of the deal remain subject to change. Notably, Google has been actively investing in AI startups, with a recent $2 billion commitment to model maker Anthropic through convertible notes, in addition to an earlier equity investment. Anthropic relies on Google's cloud services and the latest TPUs in its operations.

This trend of major tech companies entering partnerships with AI startups to encourage the use of specific cloud services or hardware is not unique to Google. Microsoft's investments in OpenAI and Amazon's bets on Anthropic are also indicative of the industry-wide push to dominate the competitive landscape in building and deploying AI models for consumer services.

Lina Khan, chair of the U.S. Federal Trade Commission, recently disclosed the agency's scrutiny of cloud providers' investments in AI startups to assess potential anti-competitive practices. This reflects the growing importance of such investments in shaping the AI industry's trajectory.