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Alphabet Ends Relationship with AI Training Firm Appen in Major Blow

Technology
0 min read

Tech giant Alphabet has decided to terminate its contractual relationship with Appen, an Australian company that has helped train many of Alphabet’s artificial intelligence products including the AI chatbot Bard.

Appen announced over the weekend that Alphabet notified them it will end all contracts effective March 19th. This is a massive blow to Appen, as Alphabet business accounts for around one-third of its total revenue.

Appen specializes in providing training data to tech firms to improve AI systems. It has helped train AI models for Microsoft, Apple, Meta, Amazon, Nvidia and others in addition to Alphabet. But the loss of the Alphabet contracts removes a huge chunk of its business.

Appen said it had no prior knowledge that Alphabet would end the relationship. The decision will impact thousands of subcontractors that Appen uses to source training data for Alphabet projects.

This termination caps what has been a very difficult stretch for the nearly 30-year-old Appen. The company has lost numerous major customers over the past two years as revenue declined 30% in 2023 and 13% in 2022.

Appen’s share price has also absolutely collapsed after peaking in 2020, falling over 99% from its high. Alphabet’s decision now deals a devastating blow to Appen’s attempts to turnaround the business.

Struggles Pivoting to Generative AI

Much of Appen’s struggles relate to challenges pivoting its offering to the new paradigm of generative AI. Models like ChatGPT and Google’s Bard work very differently than earlier AI systems. They rely more on processing power and less on human-labeled training data.

Former Appen employees said the company’s disjointed organizational structure and lack of quality control has hurt its ability to adapt its data services for generative AI. Appen touted work on search, translations, lidar, and more but large language models operate on a different scale.

For years Appen delivered solid growth supplying training data to Big Tech firms. But its business wasn’t built for the paradigm shift towards generative AI. Companies are spending far more on powerful AI chips from Nvidia and less on data from Appen.

Conflicts with Google

Interestingly, Appen has had public conflicts in the past with its now former major customer Alphabet. In 2019, Google mandated that contractors would have to pay workers at least $15 per hour. Appen did not meet that baseline wage requirement according to letters from some of its workers.

Earlier this year wage increases finally went into effect for Appen contractors working on Google projects like Bard. But other labor issues persisted. In June, Appen faced charges after allegedly firing six workers who spoke out about workplace frustrations.

This history of conflicts, along with Appen’s struggles to adapt to new AI needs, likely contributed to Alphabet’s decision to fully cut ties. The exact rationale remains unclear but the termination speaks to a relationship that was on shaky ground.

What’s Next for Appen

The loss of its Alphabet business leaves Appen in an extremely challenging position. In its filing, Appen said it will focus on managing costs and delivering quality AI training data to customers. But it has lost major customer after major customer in recent years.

Appen noted it will provide more details when it reports full year 2023 results in late February. But make no mistake, this termination represents a huge setback for its turnaround efforts.

For Alphabet, the move enables it to take greater control over how it sources training data and labeling for its AI systems. Relying less on third-party vendors aligns with its plans to invest heavily in developing its internal AI capabilities.

Meanwhile, the saga illustrates the rapid evolutions occurring in the AI sector. Generative models are transforming the field. For legacy players like Appen, adapting to stay relevant is proving enormously difficult.

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