Google to End Partnership with Scale AI After Meta’s Major Investment Shakeup

San Francisco, June 13, 2025 – Alphabet’s Google, the biggest client of AI data-labeling startup Scale AI, is planning to cut ties with the company after Meta announced it will acquire a 49% stake in Scale AI, multiple insiders told Reuters.

Google had committed to spending roughly $200 million this year on Scale AI’s human-labeled data services. These data-labeling efforts are vital for training advanced AI models, including Google’s Gemini, a competitor to OpenAI’s ChatGPT. However, with Meta becoming a significant investor, Google has started moving away from Scale AI to avoid potential conflicts.

Sources reveal Google has already reached out to other data-labeling providers this week as it seeks alternatives. This development follows Meta’s investment, which values Scale AI at $29 billion — more than double its previous $14 billion valuation.

Scale AI’s CEO, Alexandr Wang, and some key employees are expected to join Meta as part of the deal. Since Scale AI’s client base is concentrated among a few major companies, losing Google could have a substantial impact on the startup’s business.

A Scale AI spokesperson said the company’s work with big corporations and governments remains strong, emphasizing its commitment to customer data security. They declined to comment on the specifics of Google’s exit.

In 2024, Scale AI earned $870 million in revenue, with Google contributing about $150 million, sources said. Other clients such as Microsoft are reportedly reducing their dependence on Scale AI as well. Elon Musk’s xAI and OpenAI have also scaled back their engagements, though OpenAI will continue to use Scale AI alongside other data vendors.

Why Are Competitors Moving Away from Scale AI?

Tech companies competing with Meta in AI development fear that continuing to work with Scale AI, now partly owned by Meta, might reveal sensitive information about their research and development. Data-labeling contracts typically involve sharing proprietary datasets and early-stage prototypes, which could expose trade secrets.

With Meta holding a large stake, AI firms worry this could compromise their competitive advantage.

Google, Microsoft, and OpenAI declined to comment, while AI didn’t respond to requests for comment.

Competitors See New Opportunities

Scale AI generates most of its revenue by connecting AI developers with expert human annotators — from PhDs to scientists — who label complex datasets to “post-train” AI models. As AI models become smarter, demand for detailed and high-quality data labeling has skyrocketed, sometimes costing up to $100 per annotation.

Aside from AI, Scale AI also serves clients in self-driving car technology and government projects, which are expected to remain stable.

Sources say Google had already been diversifying its data-labeling partners over the past year. Meta’s recent move pushed Google to accelerate its exit from Scale AI contracts. Because of contract structures, this transition could happen quickly.

This creates an opening for Scale AI’s rivals. Jonathan Siddharth, CEO of competitor Turing, said the Meta-Scale partnership is a turning point. “AI labs now realize neutrality is essential, not optional.”

Labelbox, another Scale competitor, expects to gain hundreds of millions of dollars in new revenue by the end of the year from customers switching providers. Handshake, which focuses on building a network of PhD-level experts, reported tripled demand overnight.

Mercor, a startup offering automated recruitment of data-labelers, also sees AI labs opting to hire in-house data-labelers to maintain data security.

The Bigger Picture: Meta’s AI Ambitions and Scale AI’s Future

Founded in 2016, Scale AI has played a key role in supplying labeled datasets that power AI tools such as ChatGPT. Meta’s investment and acquisition of Scale’s CEO Wang underline its drive to catch up in the AI race, especially after its Llama 4 models disappointed earlier this year.

For Scale AI investors like Accel and Index Ventures, the deal is a win, boosting the company’s valuation significantly.