Google Terminates Its Partnership with Scale AI: After Meta’s 49% Stake Acquisition

Google terminates its partnership with Scale AI, reshaping the AI data industry. Alphabet’s Google, Scale AI’s largest customer, plans to end its $200 million deal for human-labeled data after Meta acquired a 49% stake in the startup for $14.8 billion, Reuters reports. This data was vital for Google’s Gemini AI, a competitor to ChatGPT. Meta’s move, coupled with Scale AI’s CEO joining Meta, raises concerns about data security and neutrality in the AI race.

Key Takeaways

• Google ends its $200 million partnership with Scale AI due to Meta’s 49% stake.

• Meta’s $14.8 billion investment values Scale AI at $29 billion.

• Scale AI’s data was critical for training Google’s Gemini AI model.

• Competitors like Labelbox may benefit as Google seeks new data providers.

• The AI industry faces shifts in data supply chains and neutrality concerns.

Why Google Is Ending the Scale AI Partnership

Meta’s Strategic Investment

Meta finalized a $14.8 billion deal for a 49% non-voting stake in Scale AI in June 2025. This values Scale AI at $29 billion, up from $14 billion. The deal includes Scale AI’s CEO, Alexandr Wang, joining Meta to lead a new AI lab. Meta’s investment aims to bolster its AI capabilities after Llama 4’s mixed reception.

Data Security Risks

Google’s decision hinges on data privacy fears. Scale AI’s clients share proprietary data for labeling, essential for AI training. With Meta’s stake, Google worries its Gemini AI strategies could leak to a rival. Other companies, like Microsoft and xAI, share similar concerns, prompting some to reduce reliance on Scale AI.

Impact on Gemini AI Development

Google’s $200 million deal with Scale AI in 2025 supported Gemini’s training. Losing this data source could delay updates to Gemini, which has 350 million monthly active users. Google is already engaging rivals like Labelbox to fill the gap, but transitioning may increase costs and timelines.

Understanding Scale AI’s Role

What Scale AI Does

Founded in 2016, Scale AI provides human-labeled data for AI models. Its 9,000+ contractors annotate text, images, and audio for clients like Google, OpenAI, and Microsoft. Scale AI’s revenue hit $870 million in 2024 and is projected to reach $2.5 billion in 2025. Its data is crucial for tools like Gemini and Llama.

Importance of Data Labeling

Data labeling ensures AI models understand real-world inputs. For example, labeled images help autonomous vehicles identify objects, while text annotations improve chatbots. Scale AI’s expertise made it a leader, but Meta’s influence now threatens its neutrality. This shift impacts the entire AI ecosystem.

Scale AI’s Market Position

Scale AI serves tech giants and startups, including xAI and OpenAI. Its valuation doubled after Meta’s investment, reflecting high demand for quality data. However, losing Google’s $200 million contract and potential pullbacks from others could challenge growth, despite Meta’s backing.

Meta’s Game Plan

Strengthening AI Capabilities

Meta’s investment targets AI dominance. CEO Mark Zuckerberg aims to surpass OpenAI and Google. By securing Scale AI’s data pipeline and Wang’s expertise, Meta strengthens its Llama series. Wang’s new “superintelligence” lab at Meta will focus on advanced AI models, intensifying competition.

Navigating Regulatory Challenges

Meta’s 49% non-voting stake avoids antitrust scrutiny, unlike Microsoft’s OpenAI deal. This structure, dubbed an “acquihire,” secures talent without full control. It tests the Trump administration’s stance on tech mergers, potentially setting a precedent for future AI deals.

Alexandr Wang’s Transition

At 28, Wang, a former MIT student, built Scale AI into a data-labeling powerhouse. His move to Meta as head of a 50-person AI lab is a coup for Zuckerberg. Wang’s expertise in data curation will accelerate Meta’s AI projects, but it raises questions about Scale AI’s independence.

Ripple Effects on the AI Industry

Data Supply Chain Shifts

Google’s exit disrupts Scale AI’s revenue stream. Google spent $150 million on Scale’s services in 2024, a significant portion of its $870 million revenue. Other clients, like Microsoft and xAI, are also stepping back, while OpenAI plans to continue using Scale AI as one of many vendors.

Rise of Neutral Providers

Neutrality is now critical for data providers. Labelbox’s CEO, Manu Sharma, predicts “hundreds of millions” in new revenue from clients leaving Scale AI. Handshake, another competitor, reports tripled demand from AI labs avoiding Meta’s influence. This trend favors independent providers.

Cost and Timeline Challenges

Switching providers is expensive. Google may face delays in Gemini’s updates, trailing ChatGPT’s 600 million monthly users or Meta AI’s 800 million. Building in-house data-labeling infrastructure, as some X posts suggest, could cost Google significantly, impacting its $75 billion AI investment.

What Lies Ahead

Google’s Next Steps

Google is contacting providers like Labelbox and Turing to replace Scale AI. In-house data labeling is an option, but it requires heavy investment. With Alphabet’s $90.2 billion revenue in Q1 2025, Google can absorb costs, but delays could cede ground to rivals.

Scale AI’s Outlook

Despite losing Google, Scale AI’s $29 billion valuation and Meta’s support provide stability. Its projected $2.5 billion revenue in 2025 reflects strong demand. However, maintaining client trust amid Meta’s influence will be critical for long-term growth.

Industry Trends

Tech giants are investing heavily in AI infrastructure. Google’s $75 billion AI budget, Microsoft’s $80 billion, and Meta’s Scale AI deal highlight this race. Strategic stakes, like Microsoft’s in Inflection AI, avoid regulatory hurdles while securing data and talent. Expect more such moves.

Summary

Google terminates its partnership with Scale AI after Meta’s $14.8 billion stake, citing data security risks. The $200 million deal was key for Gemini AI’s training. Meta gains a strategic edge with Scale AI’s data and CEO Alexandr Wang’s expertise. Competitors like Labelbox benefit as clients seek neutral providers. The AI industry faces supply chain disruptions, rising costs, and a focus on data neutrality, marking a pivotal moment in the AI arms race.

FAQs

1. Why did Google terminate its partnership with Scale AI?

Google ended the partnership due to Meta’s 49% stake, fearing proprietary data could leak to a rival.

2. How much was Google’s deal with Scale AI worth?

Google planned to pay $200 million in 2025 for data to train its Gemini AI model.

3. What is Meta’s stake in Scale AI?

Meta invested $14.8 billion for a 49% non-voting stake, valuing Scale AI at $29 billion.

4. Who is Alexandr Wang?

Wang, Scale AI’s 28-year-old CEO, now leads Meta’s new AI “superintelligence” lab.

5. What does Scale AI do?

Scale AI provides human-labeled data for AI training, serving clients like Google and OpenAI.

6. How does Meta’s stake impact Scale AI’s neutrality?

Meta’s influence raises concerns, prompting clients like Google and Microsoft to seek neutral providers.

7. Who benefits from Google’s exit?

Competitors like Labelbox and Handshake expect increased revenue from clients avoiding Scale AI.

8. Will Gemini AI face delays?

Switching providers could slow Gemini’s updates, impacting its competition with ChatGPT and Meta AI.

9. Why did Meta choose a 49% stake?

The non-voting stake avoids antitrust scrutiny, securing talent without full control.

10. Are other companies leaving Scale AI?

Microsoft and xAI plan to step back, but OpenAI will continue using Scale AI.