Google is Investing $2 Billion on OpenAI Rival AI Startup Anthropic

• Blockchain Council
• October 30, 2023

In a groundbreaking move, Google has officially pledged a colossal $2 billion investment in Anthropic, the up-and-coming AI startup, establishing itself as a formidable contender to OpenAI. This significant financial infusion is part of an ongoing trend, with major tech giants recognizing the potential of AI’s transformative capabilities and making substantial investments to secure their positions in the competitive field of artificial intelligence.

The funding deal, according to sources familiar cited by The Wall Street Journal, reportedly involves an initial $500 million investment, with the potential for an additional $1.5 billion at a later stage. Anthropic, in response to this development, has not provided an official statement on the matter.

This investment effort may evoke memories of Microsoft’s earlier substantial investment in OpenAI, underscoring the gravity of the competition. Notably, Amazon has also showcased its dedication to Anthropic with a significant $4 billion investment, further solidifying the notion that the funding gap in AI research is more theoretical than practical.

This investment signifies the latest move in a proxy war among tech giants, each striving to gain a foothold in the AI domain, specifically concerning large language models. Despite their immense power and expertise across various technological domains, these tech giants acknowledge their limitations in developing credible competitors to the likes of OpenAI and Anthropic in the realm of large language models.

The consensus among these giants is that large language models will significantly disrupt their business models and form an integral part of future tech platforms. Therefore, it becomes imperative for them to secure partial ownership of the leading entities in this domain.

These investments encompass more than just financial contributions. The creation and deployment of AI models at the scale required for profitable operations demand substantial infrastructure and resources. As such, the investment deals involve elements like compute credits and mutual support, acknowledging the broader requirements in AI development.

Anthropic’s approach to competing with OpenAI takes a distinctive turn. Their focus on enterprise-level products, which may not be as appealing to the average consumer, could prove to be a savvy long-term business strategy. CEO Dario Amodei emphasizes the importance of safety and transparency, which may not concern the casual user but holds paramount significance for corporate clients, shareholders, and regulatory compliance.

The significant sums of money invested in AI development are not without reason. Training, deploying, and running AI models come at staggering costs. As soon as a company manages to compress an AI model to a cost-effective level, a more powerful model emerges, rendering the previous iteration obsolete. This cost-to-performance discrepancy poses challenges for both OpenAI and Anthropic.

Anthropic’s internal documents suggest the need to spend a billion dollars by the end of 2024 to develop their next-generation model, “Claude-Next.” These significant investments underscore the financial realities of AI research and development.

Until major players like Google, Microsoft, and Amazon can independently stand at the forefront of AI development, they must wage a proxy war through billions of dollars in subsidies to foster innovation within AI startups. This strategy ensures that they remain competitive in a rapidly evolving landscape.

The investment from Google is structured as a convertible note, a type of debt that can be converted into equity during the next round of funding, as per Bloomberg reports. Google has already invested $500 million in Anthropic and has committed to an additional $1.5 billion in the future.

Amazon’s investment in Anthropic also warrants attention. In a quarterly filing with the U.S. Securities and Exchange Commission, Amazon revealed its investment of $1.25 billion in Anthropic, with the potential to convert this into equity. Additionally, Amazon has the capability to invest an additional $2.75 billion in a second note, expiring in the first quarter of 2024.

Anthropic, co-founded by siblings Dario and Daniela Amodei, has been on a remarkable journey. Prior to launching their own company in 2021, they worked as engineers at OpenAI. The Wall Street Journal reported a dispute between the Amodei siblings and OpenAI CEO Sam Altman concerning the safe development of artificial intelligence.

Anthropic’s funding story is as diverse as it is extensive. While initially funded by FTX’s Sam Bankman Fried, a renowned figure in the crypto exchange world, the startup sought additional investors after a notable setback in the crypto exchange sector. Cloud giants like Amazon and Google joined traditional Silicon Valley investors such as Spark Capital and Menlo Ventures in supporting Anthropic. Anthropic’s remarkable journey in 2023 includes securing a staggering $7 billion in funding, further cementing its position as a major player in the AI industry.