👉 Background: Character.ai is an AI chatbot that was started up by ex-Google developers back in 2021. It simulates text and voice conversations with characters and celebrities. For example, you could ask Gandalf for life advice.

👉 What happened: Originally, Character.ai was building its own large language model (LLM) for its product. But now, it has signed a $2.7 billion USD deal with Google for a one-time licence to Character.ai’s tech...and for its founders. As a result, it has decided to abandon building LLM and AI to focus on improving its chatbots

👉 What else: Building AI models became too expensive for a start-up, which was competing against tech giants like Microsoft and Google, who are splashing hundreds of billions of dollars to stay ahead in AI innovation.

What's the key learning?

💡Innovation pays off for those who can afford it - just ask tech giants like Google, Microsoft, Apple, who have over $400 billion in cash collectively.

💡Large cash holdings makes it a lot easier for tech giants to stay ahead. They can pump money into R&D without thinking twice. On the other hand, start-ups like Character.ai have tighter budgets when it comes to investing in innovation.

💡A similar pattern played out with smartwatch company, Pebble, which was one of the first players in the smartwatch space back in 2013. But by 2016, Apple and Google outpaced it with their technology, and Pebble was sold off for just $40 million USD.