With more than 200 million monthly active users and average session durations close to 30 minutes, Character.AI may be the stickiest AI app. It was co-founded by two Googlers in November 2021 to infuse personalized superintelligence into an entertainment experience. (You can chat with pre-built synthetic characters like fake Elon Musk or fake Paris Hilton, or you can design your own.)

Following Microsoft’s pseudo-acqui-hire playbook, Google just pseudo-acqui-hired Character.AI co-founders Noam Shazeer and Daniel De Freitas, who will return to Google along with about 30 people from their research team. The agreement with Google includes a non-exclusive license for Character.AI’s LLM in exchange for funding. Despite these changes, most of Character.AI’s team will remain to continue developing the product and serving its growing user base. Dominic Perella, previously the General Counsel, has been appointed interim CEO.

This pseudo-acqui-hire deal-making trend is likely to continue. With regulatory scrutiny of AI mergers and monopolies increasing, this deal structure provides Character.AI with a significant funding boost, flexibility to collaborate with other partners in the future, and (to quote Obi Wan), “No imperial entanglements.” However, it also raises some important questions about market concentration, regulatory oversight, and the potential for monopolistic practices in the AI sector.

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