Scale AI CEO Jason Droege<\/p>\n
Ian Tuttle for Scale AI<\/p>\n
As Alexandr Wang walked down the staircase to the open atrium at Scale AI headquarters in San Francisco last June, employees didn\u2019t know if he was still their boss. A day earlier, the data labeling company had announced a bombshell deal: Meta was acquiring 49% of Scale for $14 billion, and its founder CEO was leaving to lead Mark Zuckerberg\u2019s newly-formed superintelligence lab. Amid a swirl of confusion, many Scale employees thought he had already left. So, surprised to see him, the workers applauded as he headed to the stage for the company all-hands. \u201cI literally teared up,\u201d Wang tells Forbes now. \u201cIn another life, I’d be so excited to continue at Scale.\u201d <\/p>\n
He doesn\u2019t remember exactly what he told them at the meeting, but according to one person in attendance, Wang began by recounting how he\u2019d started building Scale as a freshman at MIT, then started to cry. \u201cThis is so stupid. Why am I doing this?\u201d the person recalled him saying. <\/p>\n
Wang\u2019s remark was in reference to his tears, but it seemed like an apt question to apply to the entire situation. In the wake of the surprise deal, which had leaked a few days earlier, all of Silicon Valley was similarly asking: Why was Wang giving up his own growing company, then worth $13.8 billion, to go work for Meta, which was playing catch-up in AI to Google, OpenAI and Anthropic? <\/p>\n
Scale had been a powerhouse in the market of human data, where armies of clickworkers and experts \u2014 like PhDs, lawyers and engineers \u2014 generate data to train cutting edge AI models like Google\u2019s Gemini and OpenAI\u2019s ChatGPT. Scale had also become a go-to vendor for the Department of War since it first brought large language models to the Pentagon in 2020. And the operation had, for a moment, turned Wang into the world\u2019s youngest self-made billionaire<\/a>. Now the tie-up with Meta threatened to railroad what had become a stalwart business providing infrastructure to the most valuable companies in AI. After all, the thinking went, what frontier lab would want to entrust its data to a company almost half-owned by Meta?<\/p>\n Wang, who took roughly ten Scale employees with him to Meta, says now that it was an \u201cincredible opportunity\u201d for both companies. The other half of the all-hands meeting was Wang formally introducing his successor Jason Droege, previously Scale\u2019s chief strategy officer, and before that an executive at Uber and Axon, the company that makes the Taser gun. Despite all the drama of the previous week, the meeting itself was a tight 30 minutes, with no Q&A from employees. Instead, Wang and Droege kept it quick. \u201cWe shake hands, give each other a hug, say we’re both excited about our futures,\u201d recalls Droege. \u201cAnd then the next moment, we’ve got to go do it.\u201d (Droege still holds the \u201cinterim\u201d CEO title, but internally he\u2019s seen as its long-term leader.)<\/p>\n \u201cWe definitely anticipated turbulence. There’s no question. I mean, the facts of the situation are, our founder went to another lab to help them.\u201d\n<\/p>\n Jason Droege, CEO, Scale<\/p>\n Almost one year on from the deal announcement \u2014 and a decade after its founding in May 2016 \u2014 Scale unsurprisingly looks like a much different company. Droege\u2019s first order of business as CEO was to shift the company\u2019s investment away from the data labeling business, and toward a model where it helps large enterprise companies, like Ernst & Young, Paramount and Cisco, as well as public sector clients, like the U.S. military, to develop their own internal AI applications. <\/p>\n The strategy appears to have paid off. Scale tells Forbes it tallied just shy of $1 billion in revenue last year, up from $870 million the year before<\/a>. (Throughout the entire history of the company, it has brought in $2.5 billion in revenue.) Part of the revenue growth could be a lot of help from its new shareholder Meta: As part of the arrangement, Meta agreed to pay Scale at least $450 million a year for five years for its services, or more than half of its annual AI spend, whichever is less, Forbes reported<\/a> at the time. Wang and Droege declined to comment, but it would represent nearly half of Scale\u2019s annual revenue.<\/p>\n Droege also declined to break down the split between the data and apps business. He says data labeling is still the \u201cvast majority\u201d of revenue, but he expects revenue from the app business to overtake the data business within the next 18 months. Meanwhile, Wang, now at Meta, is still rooting for the company he cofounded. \u201cThere’s this perception that Scale is cooked or done or whatnot, and that’s just absolutely not true,\u201d says Wang, calling the company\u2019s resilience a \u201chuge narrative violation.\u201d<\/p>\n Wang, whose parents were physicists at the Los Alamos lab where the atomic bomb was created, started Scale ten years ago with cofounder Lucy Guo, a Thiel Fellow who dropped out of Carnegie Mellon as part of billionaire Peter Thiel\u2019s program to get promising young people to ditch college. The pair, who met while both working at the Q&A platform Quora, had dreamed up several iterations of the company before it landed on AI infrastructure.<\/p>\n Things began to go sideways between Guo and Wang over future company roadmaps, Guo said last year<\/a> on entrepreneur Emma Grede\u2019s podcast Aspire. It all came to a head after Guo told someone she thought Wang \u201cshould get fired.\u201d That person subsequently told Wang, Guo theorized on the podcast. \u201cI was bitter about who I thought told him that because I thought there was a certain level of trust,\u201d she told Grede, adding, \u201cI felt a little betrayed.\u201d <\/p>\n Scale cofounder Alexandr Wang, who left the company to join Meta.<\/p>\n Ethan Pines for Forbes<\/p>\n In the end, Guo left the company. \u201cWe don’t really talk about this that much,\u201d Wang says when asked about the situation, with a nervous laugh. \u201cWhat they don’t tell you at YC is how common the founder breakups are. But I think that’s something that we worked through. And I’m really proud of everyone on the team in the company, to be able to be very successful beyond that.\u201d<\/p>\n Seven years later, it was Wang\u2019s turn to leave. The call from Zuckerberg first came last spring, as he was looking for a new AI chief after the disappointing performance of Meta\u2019s flagship Llama 4 model. The two had met years earlier when Wang went to him for his advice on running a startup. Asked about Zuckerberg\u2019s pitch to work for Meta, Wang downplays it. \u201cI don’t even know how much more complicated it was than Meta has this incredible opportunity in AI, and it’s very, very exciting, and let’s figure out how to work together,\u201d he says, adding that Zuckerberg\u2019s \u201cconviction was just very, very clear.\u201d<\/p>\n Have a tip? Contact reporter Richard Nieva at rnieva@forbes.com or RNieva.26 on Signal.<\/p>\n Wang then turned to his board members to weigh the opportunity. \u201cWhen you look at transactions like this, deals come about when the pros and cons are almost tied,\u201d says Mike Volpi, an early Scale backer from when he was a partner at Index Ventures. For his deliberations with Wang, it went beyond just the deal itself. \u201cA lot of the discussion wasn’t so much about the exact mechanics of the transaction,\u201d he says. \u201cIt was, what does Alex want to accomplish with his life?\u201d<\/p>\n The $14 billion deal was announced last June, and investors and employees alike received a big windfall. Most employees received a dividend that was roughly equal to half of their equity package, a source familiar with the deal said.<\/p>\n Some employees were understandably upset by Wang\u2019s decision to depart. \u201cI definitely think there’s a lot of emotion when stuff happens,\u201d Wang says when asked if he had any feelings of guilt over leaving. \u201cI think I always had confidence that the team was going to be able to do incredible work.\u201d Layoffs followed as well. Last August, two months after the deal was announced, Scale said it was axing 200 full-time employees, roughly 14% of its workforce, and discontinuing work with 500 contractors (part of Scale\u2019s corporate contract workforce, not to be confused with its data labelers who work per contract). Now the company has about 1,300 full-time employees, and plans to hire another 500 by the end of the year, a Scale spokesperson said.<\/p>\n Even before the Meta deal had been signed, Scale knew the transaction would complicate its relationships with the frontier labs. \u201cWe definitely anticipated turbulence. There’s no question,\u201d says Droege. \u201cI mean, the facts of the situation are, our founder went to another lab to help them.\u201d He adds, \u201cMost of them have come back [as customers], but not all of them.\u201d<\/p>\n To assuage fears that Scale would be in the pocket of Meta, Droege had to undergo a charm offensive to put customers at ease. Some clients wanted to visit Scale\u2019s office to meet face-to-face with leadership and researchers. Others wanted a point-by-point breakdown of the parameters of the deal. Meta would not be getting a board seat, Droege emphasized to clients, and while Wang would remain on Scale\u2019s board, no board member would or ever had knowledge of Scale\u2019s work with customers, he said. \u201cI am a shareholder of Scale,\u201d Droege says now. \u201cMy incentive is to make sure that the non-Meta customer is as happy as possible. I am not a Meta employee.\u201d <\/p>\n The most high-profile loss was OpenAI, according to two people familiar with the business relationship. It was a blow not just because of OpenAI\u2019s industry stature, but also because it was the frontier lab that first gave Scale its start in generative AI when Scale began training GPT-3, even before ChatGPT\u2019s launch in 2022 ignited the global AI frenzy. Meanwhile, Google initially ditched Scale<\/a> as a data labeling vendor after the Meta announcement, but resumed its work a few months later, according to two people familiar with the situation. <\/p>\n One customer, of course, Scale didn\u2019t have to worry about losing: Meta, where Scale played a major role in training Muse Spark, the first model built under Wang\u2019s stewardship. Unveiled last month, it\u2019s so far gotten mixed to favorable reviews, but has been seen as a genuine comeback for Meta in the model wars. \u201cIt\u2019s been a labor of love,\u201d Wang says of the new model. \u201cScale was a very, very critical partner. The success of Muse Spark, I think, is a testament to great work across many of our partners, but Scale is certainly a big part of that.\u201d Beyond that, Wang declined to discuss his work at Meta. <\/p>\n Meanwhile, Scale has attempted to upend its business since the Meta deal. Prior to the tie-up, Scale\u2019s focus was 70% on data labeling and 30% building apps for enterprises and governments, Droege says. Now he\u2019s flipped the focus, he says, with annualized revenue from the apps business tallying $200 million at the end of last year. The company has also added new enterprise customers, including the Mayo Clinic, BP and Allianz. The Mayo Clinic, for example, developed a system with Scale that reads and interprets fragmented medical records. Ernst & Young, meanwhile, uses Scale to build its internal AI agents, including one that helps it perform due diligence for clients who have hired the accounting firm to guide it through M&A deals, says Tony Qui, chief technology officer of the firm\u2019s strategy consulting arm. Qui says the company chose Scale because of a recommendation from OpenAI. (It was a few weeks before the Meta deal, which at first caused some concern, but Qui decided to continue with Scale after meeting with Droege and other company leaders.) <\/p>\n Scale claims its perch as both an enterprise vendor and a data labeler is a unique advantage. Since it works with frontier labs to train their models, it knows what the cutting edge of the technology looks like \u2014 and it\u2019s what enterprises usually want to implement soon after. \u201cScale is the only one that really can offer both of that,\u201d says Coatue partner Lucas Swisher, who led the firm\u2019s Series B investment into the company. <\/p>\n Scale has also doubled down on its business working with the U.S. government \u2014 continuing the effort that began under Wang. Since then, it\u2019s led Project Thunderforge, the Pentagon\u2019s effort to integrate AI agents into mission planning, with a $500 million contract the department awarded Scale last week. Scale was also chosen as a contractor last month, along with Palantir and Anduril, for Golden Dome, President Trump\u2019s $185 billion effort to create a missile defense shield, but both Scale and the DoW declined to discuss specifics of Scale\u2019s role in the project. <\/p>\n \u201cWe still can, in some sense, double dip on the investment.\u201d\n<\/p>\n Mike Volpi, early Scale investor<\/p>\n Scale\u2019s work with the DoW has shined particularly in data labeling, says Cameron Stanley, chief digital and artificial intelligence officer for the DoW, going back to its work in computer vision for Project Maven, an effort to bring machine learning into military intelligence workflows. The company\u2019s practices in organizing metadata are \u201ctop-notch,\u201d he said. But Scale\u2019s particular talent is in allowing the Pentagon to build off of disparate datasets, as well as understanding how to work within the department\u2019s bureaucracy to push projects forward. \u201cTheir ability to pull in vast amounts of different data and make sense of that data, and then structure it in a way that we can actually train algorithms off of it, it’s pretty unique,\u201d Stanley told Forbes. He declined to specify whether or not Scale\u2019s tools had been used in military combat. A Scale spokesperson declined to disclose specifics on its work with the DoW.<\/p>\n Droege insists the reason for the shift away from data labeling isn\u2019t because of a new ceiling created by clients not wanting to work with a vendor part-owned by Meta. Instead, it\u2019s because the data labeling business more broadly has slowed its growth, he argues. The market for building enterprise apps, by contrast, is wide open as every big company tries to make its transition to an AI world. <\/p>\n Either way, Scale\u2019s data labeling rivals, like Surge, Mercor, Handshake and Invisible, have pounced, and they haven\u2019t been shy about flamethrowing. Mercor, for instance, hired a former Scale employee last year who allegedly stole trade secrets concerning Scale\u2019s customer strategies. The lawsuit was settled in January for an undisclosed amount, according to a legal filing, which hasn\u2019t been previously reported.<\/p>\n Since the Meta deal, one rival CEO anecdotally says Scale appears to have fallen out of the shuffle when it comes to data labeling contracts. \u201cI haven\u2019t heard of them in the past couple months,\u201d they said. \u201cThey\u2019re just not a name that comes up.\u201d <\/p>\n Meanwhile, Scale is pushing forward with a potential IPO in the cards. It was one of the considerations when Scale did the deal with Meta in the first place. \u201cWe still can, in some sense, double dip on the investment,\u201d says Volpi, allowing for the possibility of a \u201csecond exit\u201d like the leftover company going public. Droege downplays the timeline. \u201cScale will very likely become a public company at some point,\u201d he says, but adds that the company is \u201csuper early in the planning process.\u201d <\/p>\n For now, the company is in uncharted territory. In the past few years, there have been a handful of similar deals where startups have made splashy aqui-hire deals with big tech companies. Founders from buzzy AI companies including Inflection, Adept, Character and Windsurf have collectively landed at Microsoft, Amazon and Google. Droege forcefully rejects being lumped into that category. <\/p>\n Why? \u201cBecause we actually had a business. Those companies didn’t have a business,\u201d Droege says. \u201cAnd so I think there’s a big difference.\u201d<\/p>\n More from ForbesForbesAmerica\u2019s Largest Family Businesses: Walmart, Wegmans, Wawa And 97 MoreBy Matt Durot<\/a>ForbesThis Family Made An $18 Billion Fortune Selling Fast Drying ConcreteBy Matt Durot<\/a>ForbesHow Chicken Scion Jim Perdue Broke The Third Generation CurseBy Chloe Sorvino<\/a>ForbesMeet The Former Burmese Refugee Vying To Be The U.S. Military\u2019s Go-To Drone GuyBy Monica Hunter-Hart<\/a>ForbesMeet The Billionaire Who Has 98% Of His Fortune In Gold And SilverBy Kirk Ogunrinde<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"Scale AI CEO Jason Droege Ian Tuttle for Scale AI As Alexandr Wang walked down the staircase to…\n","protected":false},"author":2,"featured_media":71654,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[154],"tags":[41166,41165,41167,618,9516,994,16735,15004],"class_list":{"0":"post-71653","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-mark-zuckerberg","8":"tag-data-labeling","9":"tag-jason-droege","10":"tag-lucy-guo","11":"tag-mark-zuckerberg","12":"tag-mercor","13":"tag-meta","14":"tag-scale-ai","15":"tag-surge"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@people\/116575410701746386","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/people\/wp-json\/wp\/v2\/posts\/71653","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/people\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/people\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/people\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/people\/wp-json\/wp\/v2\/comments?post=71653"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/people\/wp-json\/wp\/v2\/posts\/71653\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/people\/wp-json\/wp\/v2\/media\/71654"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/people\/wp-json\/wp\/v2\/media?parent=71653"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/people\/wp-json\/wp\/v2\/categories?post=71653"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/people\/wp-json\/wp\/v2\/tags?post=71653"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}