Meta's Scale AI deal has clients like Google halting projects, contractors scrambling, and one investor bailing out

Business Insider

5 hours ago

Google, xAI, and other tech companies aren't wasting any time distancing themselves from Scale AI.
Just hours after Meta announced a massive $14.3 billion investment in the data labeling startup, Google halted multiple projects with the company, according to internal correspondence obtained by Business Insider. Google had already been winding down its work with Scale AI, two contractors working on its projects told BI.
OpenAI and Elon Musk's xAI have paused some Scale AI projects, too, Scale AI contractors working on them told BI. A smaller Scale AI investor told BI they are selling their remaining stake in the startup because they don't think Meta's investment can make up for the loss of Big Tech clients.
These developments are the latest evidence that Scale AI could face challenges to its business, sparked by Meta's blockbuster deal to buy 49% of the startup and hire its founder Alexandr Wang. Scale AI helps Big Tech clients train and improve their latest AI models. An investment from a major AI competitor like Meta throws that relationship into doubt.
BI spoke to 10 Scale AI contractors, who said several projects from Meta's AI competitors have been put on ice. They asked to remain anonymous due to the sensitivity of the matter.
"As a whole, the nature of this business naturally fluctuates and dips do not imply a change in the relationship," a Scale AI spokesperson said. In a blog post, Scale AI's interim CEO Jason Droege said Scale remains "unequivocally" independent and has "multiple promising lines of business." In another note, Scale said it won't provide Meta with confidential information about its customers.
Google declined to comment. An OpenAI spokesperson confirmed the company was winding down its work with Scale AI. xAI and Meta didn't respond to requests for comment from BI.
Reuters reported last week that Google is planning to cut ties with Scale AI amid concerns about Meta accessing information about the search giant's latest AI developments.
Google work 'may have dried up'
Less than 24 hours after Scale AI announced its investment deal with Meta on June 12, contractors working on multiple Google projects — with codenames like "Genesis" and "Beetle Crown" — received emails seen by BI notifying them that their work was being "paused."
One US-based contractor told BI they'd spent the last few months working on a Google project designed to help Gemini answer tough biology prompts. The contractor was earning $50 an hour until their work was suddenly stopped the same day the Meta deal was announced, despite having been assured weeks before that the project would be ongoing.
"The Beetle Crown group chat just suddenly disappeared, and people were wondering what happened. It wasn't communicated well, and that only adds to the sense of like, 'I have no project now. I'm totally lost," the contractor told BI.
Google had previously "paused" and not resumed a separate large-scale AI project with Scale in the spring of this year, leaving workers scrambling as Google work became increasingly hard to find, two contractors told BI.
Scale AI told BI the spring pause was "not a notable event from our perspective" and that this kind of closure happens regularly.
Reuters previously reported that Google was Scale AI's largest customer last year, spending $150 million on its services alone last year — almost 20% of Scale AI's revenue.
Contractors who spoke with BI said work with Scale AI is now hard to come by, with dashboards showing far fewer available projects — or in some cases empty — compared to before the Meta deal.
"Work has been extremely scarce for most of us, and now it may have dried up almost completely," another Scale AI contractor who had been working on Google-related projects told BI.
A different contractor, whose dashboard showed several paused or inactive projects on Wednesday, said he lost access to all those projects overnight.
An internal dashboard of Scale's generative AI projects and clients from April, reviewed by BI, showed Scale AI was running at least 38 active projects for Google at the time — more than a third of Scale AI's 107 generative AI projects on that list. The dashboard also listed active projects for other major clients, including Apple, xAI, Meta, Microsoft, and Amazon.
Amazon, Microsoft, and Apple didn't respond to requests for comment from BI.
xAI and OpenAI also paused some Scale AI projects
As BI previously reported, Scale AI's work for xAI includes a major project called Xylophone. This project involves training xAI's chatbot to improve its conversations on a wide range of topics, from the zombie apocalypse to life on Mars.
Three contractors working on several Xylophone projects told BI their dashboard showed several of them on pause since the Meta investment.
One said they had spent most of their time working on Xylophone.
"Long story short, I am now in a state where I have been told that there are no projects for my specialty or location," they said.
"The fact that there's nothing else to work on right now just sucks," another contractor said.
Another contractor working on an OpenAI project said their work was also paused last week. The team was told they would no longer be working on the project, but were not given a specific reason.
"You can put two and two together," the contractor told BI.
Confirming OpenAI's work with Scale AI was winding down, OpenAI's spokesperson said Scale AI accounted for a small fraction of its overall data work and that it had increased its need for expertise that went beyond what Scale AI could offer.
One investor is getting out of Scale AI
Scale AI's announcement promised that its business with Meta would "substantially expand" following the investment.
It's unclear whether that expanded relationship can offset the revenue hit from losing major clients like Google.
One CEO at a rival firm told BI they've seen a spike in inbound requests from former Scale clients since the Meta deal closed.
The investor selling off their remaining stake in Scale AI said they didn't understand how Scale AI could be valued at $29 billion by Meta now that top customers, especially Google, are leaving.