Alphabet, the parent company of Google, recently made a surprising announcement that it has decided to sever its contractual relationship with Appen, an artificial intelligence (AI) data firm. Appen has played a crucial role in training Google’s chatbot Bard, optimizing Google Search results, and assisting with various other AI products. This decision, which will become effective on March 19, comes as a shock to Appen, as it claims to have had no prior knowledge of Google’s intention to terminate the contract. Appen heavily relies on Alphabet for approximately one-third of its revenue, and this unexpected termination will undoubtedly impact the livelihood of “at least two thousand subcontracted Alphabet workers,” as stated by the Alphabet Workers Union.
Appen, headquartered in Australia, has cemented itself as a go-to AI training provider for renowned tech companies such as Microsoft, Apple, Meta, Google, and Amazon. Remarkably, these five customers have accounted for 80% of Appen’s revenue in the past. Boasting a vast platform of over 1 million freelance workers spread across 170 countries, Appen has successfully trained AI models for a range of projects. In 2023, its work with Alphabet generated a staggering $82.8 million in revenue, contributing significantly to its total sales of $273 million for the year, as disclosed in a filing on Monday.
Despite its enviable client portfolio and nearly three decades of industry experience, Appen has faced numerous challenges in recent years. The company has witnessed a decline in customers, a series of high-ranking executive departures, and a substantial decrease in financial performance. While the demand for training data has surged with the rise of generative AI tools, Appen’s revenue dropped by a staggering 30% in 2023, following a 13% decline the previous year. The company attributes these dwindling figures, at least partly, to “challenging external operating and macro conditions.”
A Bumpy Ride for the Stock Market
Appen’s struggles have not gone unnoticed in the stock market. In August 2020, the company’s shares reached a peak value of AU$42.44 ($27.08) on the Australian Securities Exchange, pushing its market capitalization to an impressive $4.3 billion. However, the stock’s value has experienced a precipitous downfall since then, currently trading at around 28 Australian cents. This represents a shocking decline of over 99% from its peak value. Former employees, who prefer to remain anonymous due to potential repercussion, shed light on the company’s internal challenges. They revealed long-standing issues concerning weak quality controls and a disjointed organizational structure, which have hindered Appen’s ability to adapt to the evolving landscape of generative AI.
Past projects undertaken by Appen have revolved around tasks such as evaluating search result relevance, training AI assistants to understand different accents, categorizing e-commerce images using AI, and mapping electric vehicle charging stations. However, the focus has shifted with the emergence of large language models (LLMs) like OpenAI’s ChatGPT and Google’s Bard. These LLMs leverage vast amounts of data from the digital realm to provide sophisticated answers and advanced images in response to simple text queries. With companies now prioritizing investment in processors from companies like Nvidia, the demand for Appen’s services has declined.
Conflict with Google
Tensions between Google and Appen have been brewing for some time, primarily concerning wage disputes. In 2019, Google announced that its contractors would be required to pay their workers a minimum of $15 per hour. However, Appen failed to meet this requirement, according to public letters written by a few workers. In January 2023, following months of organizing and negotiations, Appen increased the rates for freelancers working on the Bard chatbot and other Google products to between $14 and $14.50 per hour. Despite these adjustments, labor issues persisted. In June, Appen faced charges from the U.S. National Labor Relations Board after allegedly firing six freelancers who voiced their concerns publicly regarding workplace conditions. The workers were eventually reinstated.
In light of the termination of its contract with Google, Appen has outlined its immediate priorities, which include managing costs, turning the business around, and providing customers with quality AI data. The company also indicated that it would divulge further details regarding its strategic adjustments and financial outlook in its full-year results for 2023, scheduled to be released on February 27, 2024.
As Appen faces the consequences of its severed ties with Alphabet, the company must now navigate a path forward in an increasingly competitive AI landscape. The loss of a major client undeniably poses significant challenges, but as Appen addresses its weaknesses and adapts to industry demands, it may find opportunities for growth and success once again.
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