IT SOUNDED like something that should have come from the sports desk – a US$14.3 billion transfer fee for a young up-and-coming prospect as Meta Platforms looks to rebuild its team for the tough season ahead. The head coach is an under-pressure Mark Zuckerberg, and the hot talent is Alexandr Wang, 28. His company is Scale AI, and Meta is taking a 49 per cent stake, it was confirmed last week.
Were this an acquisition, it would be the second-largest in Meta’s history, after its US$19 billion purchase of WhatsApp in 2014. But it is not an acquisition, so do not call it that, even though it bears many of the hallmarks of one.
Wang is going to join Meta as a top executive tasked with running a crack team to build an artificial intelligence (AI) superintelligence, sitting next to Zuckerberg at Meta’s headquarters. Other Scale AI employees will join, too, according to multiple reports.
So – definitely not an acquisition, just an investment that also includes putting the the company’s top talent on Meta’s payroll. Meanwhile, Meta has been trying to poach AI talent from Google and OpenAI with the promise of “seven to nine-figure” salaries, The New York Times reported.
In its defence, Meta is hardly a pioneer here. As Bloomberg Tech’s Jackie Davalos mentioned in her analysis, this kind of squad building is becoming a regular occurrence. Microsoft Corp signed Inflection AI’s co-founders; Alphabet hired Character.AI’s founders; Amazon.com took on Adept AI’s chief executive officer. On none of these occasions did they acquire the actual companies.
Two forces are driving this approach. The first, glaringly, is that the big companies are particularly keen to avoid being seen to be making acquisitions right now when judges are deep in consideration over whether earlier actions, such as Meta’s purchases of Instagram and WhatsApp, should be deemed illegal.
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For Meta, structuring the Scale AI deal as an investment means avoiding a long, turbulent timeline that would come with a buyout effort.
But the second factor is what I find more interesting. Ever since the launch of ChatGPT, there has been no shortage of soul-searching among Big Tech firms as to why they did not get there first. How could it be that the pioneering work was done outside of their campuses by individuals and companies with relative pennies compared with their research and development budgets?
The reason, as evidenced by these hirings and investments, is the very nature of bigness. Now that the Big Tech companies are mature businesses, never has their inability to move quickly and take risks been more apparent.
Does an Alexandr Wang find success at a place like Meta had he been hired as a young engineer? A company with 77,000 employees and a fierce focus on keeping Wall Street happy? One that is run by a CEO he would likely have never been able to meet, let alone be able to influence?
Startups have always had an upper hand in this way, for sure, but the low barrier to entry for those with bright AI ideas means it has never been easier to attract attention. But then what? Founders are finding themselves staring at unfathomably large data centre costs to scale their businesses. When a hyperscaler like Meta comes knocking, it can look like the only sensible way forward.
So the startup ecosystem may now behave like the minor leagues. Feeder clubs that are a breeding ground for talent wait in the wings of the bigger teams with the deepest pockets. The talent leaves, but the club remains. In what form is not quite clear, though at least investors get their money back.
The approach may seem expensive, but it is certainly fast. Why would tech giants, seeking tighter headcounts these days, try to incubate these talents when they could just sit back and wait for special geniuses to make themselves known?
Of course, there is a risk of losing talent to a competitor – hence the jacking up of compensation to levels that only the biggest companies could afford, consolidating AI expertise in just a few of the usual places. (At the same time, some smaller companies may not want to be a feeder club, and might feel unfairly treated as home-grown talent disappears after receiving an e-mail from Zuckerberg offering US$10 million to sign on – which is maybe just the beginning.)
We will see just how long this approach remains possible. As Axios’ Dan Primack has pointed out, antitrust authorities do have the power to go after these kinds of deals if they want. The Federal Trade Commission last year announced it was looking into them – just because they are not acquisitions does not mean they cannot and will not be scrutinised.
But for Meta and its peers, that is tomorrow’s concern. Today means assembling a squad as quickly as possible. BLOOMBERG
