Google is reportedly preparing to sever ties with Scale AI, following news that Meta has acquired a 49% stake in the data-labeling startup. The move has raised concerns among Scale’s clients, especially those competing directly with Meta in the AI space.
According to Reuters, Google had planned to spend around $200 million on Scale’s services this year. However, five sources familiar with the matter told Reuters that the tech giant has begun holding discussions with Scale’s competitors as it looks to shift its data-labeling contracts elsewhere. “Google had planned to pay Scale AI about $200 million this year for the human-labeled training data that is crucial for developing technology, including the sophisticated AI models that power Gemini, its ChatGPT competitor,” one source noted.
Microsoft is also said to be reconsidering its partnership with Scale, while OpenAI reportedly made a similar decision months ago. A spokesperson for OpenAI confirmed that “the company will continue to work with Scale AI, as one of its many data vendors.” Elon Musk’s xAI is also considering an exit, according to one source.
Google declined to comment on the Reuters report. A spokesperson for Scale AI also declined to discuss its relationship with Google, but told TechCrunch that “Scale’s business remains strong, and that it will continue to operate as an independent company that safeguards its customers’ data.”
Founded in 2016, Scale AI supplies highly specialized labeled datasets critical for training advanced AI systems, including those used by generative AI companies, self-driving car developers, and the U.S. government. The company’s ability to tap into a network of trained annotators—from PhDs to domain experts—has been central to its appeal. Some annotations can reportedly cost as much as $100 each.
Still, the Meta deal is causing ripple effects. “The Meta-Scale deal marks a turning point,” said Jonathan Siddharth, CEO of Scale rival Turing. “Leading AI labs are realizing neutrality is no longer optional, it’s essential.”
Other competitors are already seeing benefits. Labelbox CEO Manu Sharma told Reuters the company will “probably generate hundreds of millions of new revenue” from clients leaving Scale. Handshake, which specializes in connecting AI labs with PhDs and subject-matter experts, has also seen a surge. “Our demand has tripled overnight after the news,” said Garrett Lord, CEO at Handshake.
Brendan Foody, CEO of Mercor—another Scale competitor—said many labs are now looking to bring data-labeling operations in-house to protect proprietary data. “Our tech allows labs to scale up quickly by automating the recruiting and vetting process,” he noted.
Scale’s $29 billion valuation following Meta’s investment marks a major leap from its previous $14 billion valuation. The deal is expected to be a windfall for early investors like Accel and Index Ventures, as well as current and former employees.
However, the fallout could be significant for Scale’s core business, which relies heavily on a small group of major clients. “Scale AI intends to keep its business running while its CEO, Alexandr Wang, along with a few employees, move over to Meta,” the report said. The company earned $870 million in revenue in 2024, with Google accounting for roughly $150 million of that total.
Concerns are growing that Meta’s new influence could compromise Scale’s perceived neutrality, especially since AI companies often share sensitive research data and prototypes with data-labeling vendors. “Companies that compete with Meta in developing cutting-edge AI models are concerned that doing business with Scale could expose their research priorities and road map to a rival,” Reuters noted.
“The humans annotate complex datasets that are used to ‘post-train’ AI models, and as AI models have become smarter, the demand for the sophisticated human-provided examples has surged,” Reuters added.
Google had already been exploring diversification of its data-labeling partners for over a year, but sources say Meta’s involvement has accelerated that process. Due to the flexible structure of data-labeling contracts, the transition could happen quickly, offering an opening for rivals.
Meta, for its part, is betting big on AI. Its $14.3 billion investment in Scale gives it significant influence and brings Scale CEO Alexandr Wang into Meta to lead its “superintelligence” initiatives. The move comes as Meta looks to rebound from disappointing early performance of its Llama 4 large language models.
Google, Microsoft, and OpenAI declined to comment. xAI did not respond to a request for comment.
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