How Meta’s $14.3B Scale AI investment triggers shake-up as Google, OpenAI cut ties with the startup, founded by world’s youngest self-made billionaire Alexandr Wang

Meta, an OpenAI competitor, will take a 49% nonvoting stake in Scale and bring Wang on board to head its new "superintelligence" unit, which aims to develop next-generation artificial intelligence systems.

Wang will remain a director on the board of the startup, which he founded in 2016. Scale specializes in providing labeled or curated training data for developing advanced AI models like OpenAI’s ChatGPT.

Alexandr Wang, founder of Scale AI, testifies during a House Armed Services Subcommittee on Cyber, Information Technologies and Innovation hearing about artificial intelligence on Capitol Hill July 18, 2023 in Washington, DC. Photo by Getty Images via AFP

The deal, which valued Scale at $29 billion, marks a win both for Meta, which has been considered to be trailing behind in the AI race, and for Wang, 28, who is poised to become one of the most influential figures in the field.

But the benefits are less clear for Scale as aligning itself with Meta has prompted some of its biggest clients to reevaluate their projects with the startup.

Just hours after Meta announced the deal last week, Google said it would sever ties with the firm and had even held talks with rival providers, Reuters reported.

The tech giant, Scale’s top client, poured $150 million into Scale’s services in 2024 and had previously planned to spend $200 million this year for its human-labeled training data.

OpenAI, meanwhile, is winding down its contracts with Scale, cutting ties just days after the announcement, according to Bloomberg.

While the company said it was already reducing its reliance on the startup before the deal, with Scale now handling only a small portion of OpenAI’s data-labeling work, the move highlights new challenges for Scale.

Initially hiring a large pool of contractors to perform basic data labeling for early AI systems, Scale has since shifted toward working with more highly trained specialists, including those with doctorates and other advanced degrees, to adapt to the growing complexity of newer models.

This places it in an increasingly crowded and competitive market as rivals such as Turing, Invisible Technologies, Labelbox and Uber Technologies have emerged to meet the growing demand for data.

Since news of the Meta deal broke, several of these companies have reported a surge in interest from customers uneasy about Meta gaining more visibility into their AI development process.

"The last week has been completely insane," Jonathan Siddharth, CEO of Turing, told TIME magazine, adding that his firm has secured $50 million in potential contracts over the last two weeks "as frontier labs recognize that advancing AGI requires truly neutral partners."

Garrett Lord, CEO of Handshake, another Scale competitor, said his company saw demand triple "overnight" following the Meta deal.

"If you're General Motors or Toyota, you don't want your competitors coming into your manufacturing plant and seeing how you run your processes," he noted.

The deal also caught many employees at Scale off guard. A former employee told Forbes that teams were left confused and scrambling, adding that some expressed concerns about what kind of access Meta might gain to past projects, even though most contracts require that data be deleted upon completion.

"This was great for Alex and early investors, terrible for everyone else including employees and former employees," a former senior Scale employee said. "Unclear how the deal helps Scale."

Scale’s newly appointed interim CEO Jason Droege reassured customers, employees and investors in a Wednesday post that the company is not pivoting or scaling back operations, CNBC reported.

"Scale remains, unequivocally, an independent company," Droege wrote. "This deal rewards many of the people who helped build Scale into what it is today, but more importantly to me, it’s also a validation of the course we’re on."

Still, for many Scale contractors, the impact of the Meta investment has been immediate. Several said their dashboards were either empty or showing much fewer available projects after a number of projects tied to Meta’s AI rivals were paused.

"Work has been extremely scarce for most of us, and now it may have dried up almost completely," one contractor who had previously been involved in Google-related tasks told Business Insider.

Another reported losing access to multiple projects overnight after they were previously shown as inactive or on hold on the contractor’s dashboard. Three others working on Xylophone projects for Elon Musk’s xAI said their works had been put on ice since the Meta deal was announced.

"I have been told that there are no projects for my specialty or location," one of them said.

"The fact that there's nothing else to work on right now just sucks," another added.

The uncertainty is also spooking some investors. One smaller shareholder said they planned to sell off their remaining stake in Scale, citing doubts that Meta’s backing could offset the departure of big tech clients.

The investor also expressed skepticism about how the startup could still command a $29 billion valuation now that major partners like Google are pulling back.