• D.C.
  • BXL
  • Lagos
  • Dubai
  • Beijing
  • SG
  • D.C.
  • BXL
  • Lagos
Semafor Logo
  • Dubai
  • Beijing
  • SG

In today’s edition, we have a scoop on Keerti Melkote, founder of Aruba Networks, being named the ne͏‌  ͏‌  ͏‌  ͏‌  ͏‌  ͏‌ 
 
rotating globe
July 31, 2024
semafor

Technology

Technology
Sign up for our free newsletters
 
Reed Albergotti
Reed Albergotti

Hi, and welcome back to Semafor Tech.

There’s a lot of cognitive dissonance in AI investments these days. On one hand, general purpose AI models have arrived and they are extremely impressive. On the other hand, making them is expensive and it’s unclear whether they offer very much value to consumers and businesses at this point.

That’s why investors are starting to wonder about how “long term” they need to be thinking when it comes to AI. And that was apparent in Microsoft’s earnings report yesterday, when the company said it had more than doubled its spending on data centers in the fiscal year, to $35.4 billion, while its quarterly cloud revenue growth slowed to 30%. (Great analysis here from Anita Ramaswamy at The Information.)

So, where is AI profit hiding? It’s in that $35.4 billion. If you break down everything that goes into building those Microsoft data centers, from the hardware components to the software that runs every part of the technology stack, you’ll find companies looking to sell something. (See Nvidia).

Now, extrapolate that out. Every big tech company is doing something similar to Microsoft. Soon, almost every medium to large size company will be, too. Building AI itself is a very long term bet. But you can make money right now on the infrastructure layer of AI.

Even after the AI hype cycle ends, and we start seeing headlines about the end of AI, that data center spending will just continue to go up. Our scoop today, which you can read about below, focuses on one of the companies hoping to capture a portion of that massive spend. I think it’s a window into how some companies have figured out how to profit from AI today.

Move Fast/Break Things

➚ MOVE FAST: Take two. OpenAI is releasing its controversial advanced voice mode for ChatGPT to a small group of users, and will make it generally available for paid subscribers in the coming months. The company said the service won’t be allowed to impersonate other people’s voices, nodding to the previous backlash. When the feature first debuted to launch its latest GPT-4o model in May, one voice sounded eerily similar to Scarlett Johannsson.

➘ BREAK THINGS: Cut. Meta has reportedly canned its line of AI chatbots based on celebrity personalities, like YouTube star MrBeast, socialite Paris Hilton, and athlete Tom Brady after less than a year. Users didn’t take to the chatbots much, and didn’t bother engaging with them enough for it to be worth Meta paying celebrities millions of dollars to license their images and personalities.

Meta/YouTube
PostEmail
Artificial Flavor
Michaela Stache/Reuters

A few years ago, AI chatbots couldn’t “really comprehend” flirting. But now they are better than some humans, leading NEO Agency, which represents some 70 creators on porn-heavy OnlyFans, to use them to entice subscribers, CEO Luc Jaris told Reuters. They often start with small talk.

“You cannot directly jump into the typical ‘Hey, Daddy, tip me!’ stuff,” Jaris told the news outlet. “You have to start by really comprehending the fan... Where’s he from? What’s his problem? Why does he hate his boss? What’s his dog’s name? You collect information. Because otherwise, how are you supposed to connect with him? How are you supposed to get money out of him?”

Using AI to reply to messages goes against OnlyFans’ rules, and the pledge of a direct connection to performers have made it a popular site, according to Reuters. But there are benefits to employing chatbots: They can work tirelessly, have perfect English skills, and are cheaper to scale. One type of software known as FlirtFlow is commonly used by companies like NEO Agency. It’s probably only a matter of time before someone starts an OnlyFans competitor that is all AI.

It’s also not easy being a human chatter, as one writer found out for Wired. The wages are low, and it becomes tedious and psychologically challenging to keep trying to get people to pay for porn. They have to adopt fake personas, sweet talk customers, and make up explicit scenarios in multiple conversations for hours.

— Katyanna Quach

PostEmail
Reed Albergotti

Anyscale hires new CEO to boost sales

THE SCOOP

Anyscale, a billion-dollar startup that builds crucial software for OpenAI and other major players in the industry, has hired a new CEO to supercharge sales, the company exclusively shared with Semafor.

Keerti Melkote, founder of Aruba Networks, which he sold to Hewlett Packard Enterprise for $2.7 billion in 2015, will take the helm. Anyscale CEO and co-founder Robert Nishihara will become the company’s chief technology officer.

The move is an example of the bifurcation of the current AI boom, with one group of startups spending large sums of investor money to grow user bases and advance capabilities, while other companies reap immediate rewards by building the infrastructure.

No company exemplifies the “picks and shovels” value proposition better than Nvidia, which makes the most powerful hardware used to train and run AI models.

But AI companies also need complex software in that effort, and that’s where Anyscale comes in. Founded in 2019, it developed an open-source project, dubbed Ray, that makes it easier for firms to quickly train AI models using vast amounts of data and on multiple GPUs at once, which can be an immense logistical challenge in itself.

Training runs on the most powerful AI models are now so costly that if all of the GPUs are not synchronized in the most efficient way possible, it can amount to lighting money on fire.

From left to right: Ion Stoica, Philipp Moritz, Robert Nishihara, and Keerti Melkote.
Anyscale

Ray software is now also used by companies like Apple, Netflix, Uber and ByteDance, Nishihara told Semafor. And Anyscale has found a market for its services in small to medium-sized businesses that want to train AI models but don’t have the technical staff to handle the infrastructure.

Adoption of Ray is growing six-fold year over year, he said, measured by the number of downloads of its software and the number of unique “clusters” of GPUs that utilize Ray, which has reached about 120,000 per week.

But Nishihara, a 33-year-old computer scientist, says his heart wasn’t in making sales pitches. At a board meeting roughly six months ago, he suggested becoming CTO and bringing in an experienced CEO to ramp up revenue.

Venture capitalist Ben Horowitz, who sits on Anyscale’s board, was a bit surprised, Nishihara said. Horowitz and his partner, Marc Andreessen, are known for their almost religious belief in founder-led startups. Nishihara said he had to reassure the board that he was still fully committed to the company.

Still, Horowitz said finding the right person would be a challenge.

After selling Aruba Networks to HPE, Melkote stayed on, building it into a formidable competitor to Cisco Systems. In 2021, he resigned so he could spend time with his son before he went to college. He was also thinking about starting an AI company and talking to investors. Melkote was in Japan with his son when he got a call from a16z about Anyscale, whose co-founder includes Ion Stoica, who co-founded analytics firm Databricks and is its executive chairman.

Aaron Schildkrout, an early Anyscale investor who has been helping to run the company, said his biggest question when interviewing Melkote was “does this guy have the hunger?” “I came out with a strong ‘yes,’” Schildkrout said.

Melkote said he realized it represented a unique opportunity to build a huge business. He also felt chemistry with the team, he said, “especially because I have walked in Robert’s shoes.”

Why OpenAI gave up on building software to train AI models and outsourced it to Anyscale. →

PostEmail
Semafor Stat

The amount that Brazil plans to invest in AI initiatives that will improve public health, the environment, education, and other sectors. Part of the funds will also go toward tech infrastructure and development to achieve “national sovereignty,” so that Brazil isn’t reliant on AI built in other countries. “Instead of waiting for AI to come from China, the US, South Korea, Japan, why not have our own?” Brazilian President Luiz Inácio Lula da Silva said on Tuesday.

PostEmail
What We’re Tracking

AI search startup Perplexity announced a new revenue sharing agreement Tuesday with major media brands, including Fortune, Der Spiegel, and Time, we reported yesterday.

The Perplexity Publishers Program will distribute revenue to media outlets when their content appears next to ads that will launch in the coming months.

The publisher program was first reported by Semafor last month, when the company was under intense scrutiny for the way it credited publications for content displayed in Perplexity search results.

Forbes accused Perplexity of failing to provide proper citations in a summary of its investigative article about former Google CEO Eric Schmidt. Later, Wired alleged that Perplexity had surreptitiously scraped content from news sites using alternative IP addresses.

Wired reported that Amazon, which hosted the allegedly nefarious IP addresses, was investigating whether the startup violated its policies. Perplexity, which counts Amazon founder Jeff Bezos as an investor, said the probe found it did nothing wrong.

Semafor

After the original allegations from Forbes, Perplexity engineers worked around the clock to change the way its pages are laid out, displaying more prominent citations from publishers, Semafor reported earlier.

Those changes did little to quell a wave of intense criticism from media companies and reporters, many of whom took to X to express their displeasure with the startup.

Dmitry Shevelenko, Perplexity’s chief business officer, told Semafor that some publishers dropped out of the partnership program after the reporting from Forbes and Wired. Those firms, he said, were particularly concerned about internal revolts from staff who might disagree with the strategy.

“We were basically a month away from announcing the program before the Forbes and Wired stuff hit. And so there were four or five that were almost there and decided to just wait for the second wave,” he said.

Shevelenko also said that Perplexity had to convince publishers like Time, Fortune and Der Spiegel that it was a good faith actor, and that the allegations against it came down to a misunderstanding.

PostEmail
Hot on Semafor
PostEmail