[Reuters Breakingviews] Mark Zuckerberg tries to buy AI salvation too

NEW YORK, June 10 (Reuters Breakingviews) - Mark Zuckerberg is digging back into the M&A playbook that saved him before. With the Meta Platforms META.O social-media empire he controls facing an existential threat from artificial intelligence, he may be on the verge of paying some $15 billion to buy a 49% stake in Scale AI and the services of its founder, Alexandr Wang. Replicating the Instagram deal, however, will be hard to do.

Advertising accounts for more than 95% of the Meta’s revenue, and rapidly advancing machine-learning technology could send eyeballs looking elsewhere. The $1.8 trillion company’s attempts to build its own AI models are running into stiff competition from rivals big and small.

More broadly, Zuckerberg is struggling to build on his own. Gigantic investments into the Metaverse have led to some $30 billion of combined losses over the past two years, but without much consumer buzz to show for it. Likewise, its Llama AI model is off to a slow start.

For those reasons, backing Scale AI and putting Wang in charge of a new superintelligence research division, as The Information reported on Tuesday, makes some sense. It would be one of the biggest acqui-hires ever, and one of the biggest capital injections into a privately funded firm.

Scale AI holds promise because of its position feeding large-language models correct data by labeling and scrubbing it. Whether Wang, and possibly Zuckerberg, can grow it into something more than a digital sweatshop is the question.

Zuckerberg deserves some benefit of doubt. When Facebook went public in 2012, there were serious doubts about its ability to make the transition from PC to mobile. Buying two-year-old Instagram and boss Kevin Systrom ahead of the IPO for $1 billion, twice its private valuation, raised eyebrows at the time. This year, Instagram will deliver more than half of Meta’s U.S. ad revenue, according to research firm eMarketer. Paying $19 billion for text-messaging service WhatsApp two years later also seemed daffy, until its user growth exploded.

The ultimate sign of Zuckerberg’s M&A nous is that the U.S. Federal Trade Commission wants to unwind both deals, accusing Meta of being a monopolist. It’s also a reason to be skeptical about a Scale AI investment, as even a non-controlling stake would probably attract scrutiny from trustbusters. Moreover, instead of shopping from a position of strength, Meta is playing defense in artificial intelligence. It may not be able to buy its way out of trouble this time.

CONTEXT NEWS

Meta Platforms will pay nearly $15 billion for a 49% stake in artificial intelligence software developer Scale AI, in a deal that would also put the startup’s founder, Alexandr Wang, in charge of a new research lab, technology news website The Information reported on June 10, citing unnamed sources.

Started in 2016, Scale AI labels and cleans up data used to train tools such as OpenAI’s ChatGPT.

Meta shareholder returns float upward on AI hopes