Google plans to sever its relationship with Scale AI following Meta’s acquisition of a 49% stake in the data-labeling startup. The move raises industry-wide concerns over data security and competitive exposure in the race to build advanced AI models. Scale AI, once valued at $14 billion, now faces major client departures as rivals seize new market opportunities.
Google Withdraws Amid Meta Acquisition
Google was prepared to pay Scale AI approximately $200 million in 2024 for human-labeled training data essential to developing its Gemini AI model, a direct competitor to ChatGPT. After Meta’s investment, Google immediately began negotiating with alternative data providers, aiming to shift away from Scale AI entirely. This decision follows over a year of Google exploring supplier diversification.
Security Concerns Trigger Industry-Wide Response
Scale AI’s business model requires access to proprietary data and prototype products from its clients. With Meta now holding a significant ownership stake, companies fear their confidential research and product roadmaps could be exposed to a direct competitor. Microsoft, OpenAI, xAI, and other AI labs are reportedly distancing themselves from Scale AI due to these risks.
Massive Revenue and High Stakes
Scale AI generated $870 million in revenue in 2024, with Google alone contributing $150 million. Its core revenue stream comes from generative AI companies that depend on highly specialized human-labeled datasets, sometimes costing up to $100 per annotation. While contracts with government agencies and self-driving companies are expected to remain stable, the loss of major AI clients poses a serious threat to Scale AI’s future revenue.
Competitors Capitalize on Scale AI’s Crisis
Rivals are already benefiting from the fallout. Labelbox expects to add hundreds of millions in new revenue by year-end. Handshake, which focuses on expert networks, reports tripled demand since the Meta deal was announced. Mercor, offering automated recruitment for in-house data-labeling teams, has seen a surge in interest as AI labs prioritize data security. Turing CEO Jonathan Siddharth emphasized that neutrality in data-labeling partnerships is now essential for AI labs competing with Meta.
Meta’s Strategic Move
The acquisition gives Meta a stronger foothold in AI as it aims to catch up with rivals following underwhelming performance from its Llama 4 large language models. Scale AI’s CEO Alexandr Wang will take a leading role within Meta’s AI operations. The deal benefits Scale AI’s investors, including Accel and Index Ventures, but leaves its longstanding customer relationships in jeopardy.
Conclusion
Meta’s investment in Scale AI has triggered a major reshuffle in the AI data-labeling market. Google’s exit and broader client defections signal a growing emphasis on neutrality and data security. While Meta gains a valuable asset, Scale AI faces an uncertain path as it works to stabilize its client base and revenue streams under new ownership dynamics.
