AI Startup Tackles Shoplifting Detection While Tech Giants Pursue Innovative Acquisition Strategies

One startup's plan to fix AI's "shoplifting" problem

Algorithm will identify sources used by generative AI, compensate them for use. Bill Gross made his name in the tech world in the 1990s, when he came up with a novel way for search engines to make money on advertising. Under his pricing scheme, advertisers would pay when people clicked on their ads. Now, the "pay-per-click" guy has founded a startup called ProRata, which has an audacious, possibly pie-in-the-sky business model: "AI pay-per-use." Gross, who is CEO of the Pasadena, California, company, doesn't mince words about the generative AI industry. "It's stealing," he says. "They're shoplifting and laundering the world's knowledge to their benefit." AI companies often argue that they need vast troves of data to create cutting-edge generative tools and that scraping data from the internet, whether it's text from websites, video or captions from YouTube, or books pilfered from pirate libraries, is legally allowed. Gross doesn't buy that argument. "I think it's bullshit," he says. So do plenty of media executives, artists, writers, musicians, and other rights-holders who are pushing back -- it's hard to keep up with the constant flurry of copyright lawsuits filed against AI companies, alleging that the way they operate amounts to theft. But Gross thinks ProRata offers a solution that beats legal battles. "To make it fair -- that's what I'm trying to do," he says. "I don't think this should be solved by lawsuits." His company aims to arrange revenue-sharing deals so publishers and individuals get paid when AI companies use their work. Gross explains it like this: "We can take the output of generative AI, whether it's text or an image or music or a movie, and break it down into the components, to figure out where they came from, and then give a percentage attribution to each copyright holder, and then pay them accordingly." ProRata has filed patent applications for the algorithms it created to assign attribution and make the appropriate payments. This week, the company, which has raised $25 million, launched with a number of big-name partners, including Universal Music Group, the Financial Times, The Atlantic, and media company Axel Springer. In addition, it has made deals with authors with large followings, including Tony Robbins, Neal Postman, and Scott Galloway. (It has also partnered with former White House communications director Anthony Scaramucci.) Even journalism professor Jeff Jarvis, who believes scraping the web for AI training is fair use, has signed on. He tells WIRED that it's smart for people in the news industry to band together to get AI companies access to "credible and current information" to include in their output. "I hope that ProRata might open discussion for what could turn into APIs [application programming interfaces] for various content," he says. Following the company's initial announcement, Gross says he had a deluge of messages from other companies asking to sign up, including a text from Time CEO Jessica Sibley. ProRata secured a deal with Time, the publisher confirmed to WIRED. He plans to pursue agreements with high-profile YouTubers and other individual online stars. The key word here is "plans." The company is still in its very early days, and Gross is talking a big game. As a proof of concept, ProRata is launching its own subscription chatbot-style search engine in October. Unlike other AI search products, ProRata's search tool will exclusively use licensed data. There's nothing scraped using a web crawler. "Nothing from Reddit," he says. Ed Newton-Rex, a former Stability AI executive who now runs the ethical data licensing nonprofit Fairly Trained, is heartened by ProRata's debut. "It's great to see a generative AI company licensing training data before releasing their model, in contrast to many other companies' approach," he says. "The deals they have in place further demonstrate media companies' openness to working with good actors." Gross wants the search engine to demonstrate that quality of data is more important than quantity and believes that limiting the model to trustworthy information sources will curb hallucinations. "I'm claiming that 70 million good documents is actually superior to 70 billion bad documents," he says. "It's going to lead to better answers." What's more, Gross thinks he can get enough people to sign up for this all-licensed-data AI search engine to make as much money needed to pay its data providers their allotted share. "Every month the partners will get a statement from us saying, 'Here's what people search for, here's how your content was used, and here's your pro rata check,'" he says. Other startups already are jostling for prominence in this new world of training-data licensing, like the marketplaces TollBit and Human Native AI. A nonprofit called the Dataset Providers Alliance was formed earlier this summer to push for more standards in licensing; founding members include services like the Global Copyright Exchange and Datarade. ProRata's business model hinges in part on its plan to license its attribution and payment technologies to other companies, including major AI players. Some of those companies have begun striking their own deals with publishers. (The Atlantic and Axel Springer, for instance, have agreements with OpenAI.) Gross hopes that AI companies will find licensing ProRata's models more affordable than creating them in-house. "I'll license the system to anyone who wants to use it," Gross says. "I want to make it so cheap that it's like a Visa or Mastercard fee." This story originally appeared on wired.com.

The new AI deal: buy everything but the company

While big tech companies typically buy startups outright, they have turned to a more complicated deal structure for young AI companies. It involves licensing the technology and hiring the top employees -- effectively swallowing the startup and its main assets -- without becoming the owner of the firm.In 2022, Noam Shazeer and Daniel De Freitas left their jobs developing artificial intelligence at Google. They said the tech giant moved too slowly. So they created Character.AI, a chatbot startup, and raised nearly $200 million. Last week, Shazeer and De Freitas announced that they were returning to Google. They had struck a deal to rejoin its AI research arm, along with roughly 20% of Character.AI's employees, and provide their startup's technology, they said. But even though Google was getting all that, it was not buying Character.AI. Instead, Google agreed to pay $3 billion to license the technology, two people with knowledge of the deal said. About $2.5 billion of that sum will then be used to buy out Character.AI's shareholders, including Shazeer, who owns 30% to 40% of the company and stands to net $750 million to $1 billion, the people said. What remains of Character.AI will continue operating without its founders and investors. The deal was one of several unusual transactions that have recently emerged in Silicon Valley. While big tech companies typically buy startups outright, they have turned to a more complicated deal structure for young AI companies. It involves licensing the technology and hiring the top employees -- effectively swallowing the startup and its main assets -- without becoming the owner of the firm. These transactions are being driven by the big tech companies' desire to sidestep regulatory scrutiny while trying to get ahead in AI, said three people who have been involved in such agreements. Google, Amazon, Meta, Apple and Microsoft are under a magnifying glass from agencies like the Federal Trade Commission over whether they are squashing competition, including by buying startups. "Large tech firms may clearly be trying to avoid regulatory scrutiny by not directly acquiring the targeted firms," said Justin Johnson, a business economist who focuses on antitrust at Cornell University. But "these deals do indeed start to look a lot like regular acquisitions." In a statement, Google said it was "thrilled" that Shazeer was returning alongside some of his colleagues and declined to comment on antitrust scrutiny. On Monday, a federal judge issued a landmark ruling that found Google had violated antitrust law by abusing a monopoly in online search. A Character.AI spokesperson declined to comment beyond the announcement of the Google deal. The Information earlier reported on the deal's details. Since the AI boom took off in late 2022, it has transformed tech deals. Investors initially raced to pour money into AI startups at high valuations. That led to an unusually frenzied pace, with startups such as Anthropic raising large sums frequently and agreeing to various funding conditions, such as using chips and cloud computing services from the companies that invested in them. That excitement cooled as it became clear that some high-profile AI startups would not succeed, creating an opportunity for big tech companies to swoop in with nontraditional deals. Microsoft kicked off the trend in March when it agreed to pay the AI startup Inflection more than $650 million to license its technology and hire almost all of its employees, including its founder, Mustafa Suleyman. Suleyman, an AI veteran, now leads Microsoft's consumer AI business. In June, Amazon inked a similar deal with the AI startup Adept, bringing on many of its employees, including its founder, David Luan. Amazon paid Adept at least $330 million to license its technology, with much of the money going toward paying back the $414 million that the startup had raised from investors, three people with knowledge of the transaction said. Amazon also offered a $100 million retention bonus to Adept employees who joined, the people said. Regulators are watching. The FTC is working on a broad study of AI deals between startups and Microsoft, Amazon and Google, the agency said in January. It is also investigating whether Microsoft should have notified regulators about the Inflection deal, which would have subjected the arrangement to more immediate scrutiny, a person with knowledge of the matter said. On Thursday, Britain's antitrust regulator said it was investigating an investment deal that Amazon had made with Anthropic. Silicon Valley has embraced the unusual deals because startup founders can continue working on their technology with the resources of a large company, without worrying about making money on their own. The transactions can also provide a fast return for investors. Investors in Character.AI, which was privately valued at $1 billion, made a 2-1/2-times return from the Google licensing deal after just two years. With the Adept and Inflection deals, most investors got their money back, people familiar with the transactions said. Yet the transactions have also left behind orphaned corporate entities, stranding remaining employees at startups where the founders and investors have moved on. Those employees do not get to partake in the financial spoils of these deals. That has caused consternation among some tech investors and entrepreneurs. "If you build a company and you take on money from investors, every person involved deserves to be rewarded," said Sebastian Thrun, an AI researcher and serial entrepreneur known for founding Google's self-driving car project. "This is why Silicon Valley emerged. If you water things down, it will be hard for the ecosystem to survive." Matt Turck, an investor at the venture firm FirstMark Capital, said he hoped these types of deals would not continue because they created "a messy structure that breaks down the alignment" of founders, employees and investors. It is unclear how the left-behind companies will fare. At Character.AI, Dominic Perella, the general counsel, has become the interim CEO. The startup has said it is "committed to serving our users through innovative new products." At Adept, teams working on product, sales and other areas did not join Amazon, a person familiar with the agreement said. Amazon hired only the researchers who built Adept's AI technology. The startup's former head of engineering, Zach Brock, has since taken over as CEO, and the company is trying to license its technology to other firms, according to a recent pitch sent to prospective partners that was viewed by The New York Times. Inflection has also hired a new CEO, but just two employees stayed on while the rest -- roughly 70 people -- joined Microsoft. Inflection used the $650 million licensing fee from Microsoft to reimburse its investors, who had poured $1.5 billion into the company. More of these deals may surface. Many AI startups have raised huge sums on wildly ambitious goals, and large acquirers remain eager to pay for the best talent, ideas and products. At the same time, some of the startups are struggling to make money and to compete with the bigger players, so they may be more willing to entertain deal talks. "Founders and investors realize that not every high-profile AI startup with great founders is going to be the next OpenAI or Google," Turck said.