Google paid $2.7 billion to bring back an AI genius who quit in frustration

A co-author of a seminal research paper that kicked off the AI boom, Shazeer quit Google in 2021 to start his own company after the search giant refused to release a chatbot he developed. When that startup, Character.AI, began to flounder, his old employer swooped in.

Google wrote Character a check for around $2.7 billion, according to people with knowledge of the deal. The official reason for the payment was to license Character’s technology. But the deal included another component: Shazeer agreed to work for Google again.

Within Google, Shazeeer’s return is widely viewed as the primary reason the company agreed to pay the multibillion-dollar licensing fee.

The arrangement has thrust him into the middle of a debate in Silicon Valley about whether tech giants are overspending in the race to develop cutting-edge AI, which some believe will define the future of computing.

“Noam is clearly a great person in that space," said Christopher Manning, director of the Stanford Artificial Intelligence Laboratory. “Is he 20 times as good as other people?"

It is a remarkable turn of events after Shazeer publicly said the search giant had become too risk-averse in developing AI. The 48-year-old engineer is now one of three people leading Google’s efforts to build the next version of its most powerful AI technology, Gemini.

Shazeer made hundreds of millions of dollars from his stake in Character as part of the deal, according to one of the knowledgeable people. The payout is unusually large for a founder who didn’t sell his company or take it public.

Google declined to make Shazeer available for an interview, and he didn’t respond to requests for comment.

AI pioneer

Shazeer joined Google in 2000 as one of its first few hundred employees. His first major project was building a system to improve the search engine’s spelling correction function. Shortly into his tenure, he asked then-CEO Eric Schmidt for access to thousands of computer chips.

“I’m going to solve general knowledge by the weekend," Shazeer told Schmidt, the CEO recalled during a 2015 Stanford University talk. The early effort failed, but Schmidt grew confident Shazeer had what it took to build AI with human-level intelligence.

“If there’s anybody I can think of in the world who’s likely to do it, it’s going to be him," Schmidt said during the talk.

In 2017, Shazeer published a paper with seven other Google researchers called “Attention is All You Need," detailing a computer system that could reliably predict the next word in a sequence when prompted by humans. It became the underpinning of the generative AI technology that followed.

Shazeer teamed with a Google colleague, Daniel De Freitas, to build a chatbot originally named Meena that could banter confidently on a range of topics. In a widely circulated memo, “Meena Eats the World," Shazeer predicted it could replace Google’s search engine and produce trillions of dollars in revenue, said people familiar with the document.

Google executives declined to release the chatbot to the public, citing concerns around safety and fairness. Shazeer and De Freitas quit in 2021 to launch Character.

‘It’s going to be super, super helpful’

One year later, OpenAI unveiled ChatGPT, demonstrating the massive public appetite for AI-powered chatbots. The following March, Character raised $150 million in an investment round valuing it at $1 billion.

Shazeer and his team hoped people would pay to interact with chatbots that can provide practical advice or mimic celebrities like Elon Musk and fictional characters like Percy Jackson.

“It’s going to be super, super helpful to a lot of people who are lonely or depressed," Shazeer said on “The Aarthi and Sriram Show" podcast last year.

As the company grew, staffers increasingly had to try to block customers from engaging in romantic role-play, a use case that didn’t fit Shazeer and De Freitas’s vision. Like other AI startups trying to compete with giants including OpenAI and Microsoft, Character also struggled to cover the high costs of developing its technology before it had a robust source of revenue.

Shazeer looked into raising more money for Character earlier this year and sounded out potential buyers including Facebook owner Meta Platforms, The Wall Street Journal previously reported. Character announced the deal with Google parent Alphabet last month, writing in a blog post that “the landscape has shifted" in the AI business since the company’s founding.

A Character spokeswoman said the company has more than 20 million monthly active users and is on a good trajectory toward building a consumer business.

License to…?

In addition to Shazeer’s payout, Google’s payment was used to buy shares from Character’s investors and employees and to fund the startup’s continued operations—minus Shazeer, De Freitas and about 30 of their colleagues who have joined Google.

Google isn’t the first tech giant to license a smaller company’s technology in large part to hire its senior staff. Microsoft and Amazon have made similar deals this year. The unusual structure allows them to bring in coveted AI researchers whose startups are struggling without waiting for the regulatory approvals needed for formal acquisitions.

People who work on AI at Google said they don’t know what the company will do with the technology it licensed from Character.

Shazeer, however, is already back to work at Google with the title of vice president. He has gone from running a company with hundreds of employees to focusing on research and supervising a handful of people, including De Freitas.

Google co-founder Sergey Brin, who played a key role in the deal to bring Shazeer back, said at a recent conference that the company was previously too timid in deploying AI applications. Now, he said, Google is developing and launching AI technology as fast as it can.

“Noam, by the way, is back at Google, which is awesome," he added.

Tom Dotan, Berber Jin and Deepa Seetharaman contributed to this article.

Write to Miles Kruppa at miles.kruppa@wsj.com and Lauren Thomas at lauren.thomas@wsj.com