Alphabet, the parent company of Google, has made the decision to sever its contractual ties with Appen, an artificial intelligence data firm. This comes as a surprise to Appen as the company had no prior knowledge of Google’s decision. The termination of the contract will take effect on March 19, with significant consequences for both parties involved.
Appen heavily relied on Alphabet for approximately one-third of its revenue. Therefore, the termination of the partnership will have a significant impact on Appen’s workforce. At least two thousand subcontracted workers who were working with Alphabet will be affected by this decision. The Alphabet Workers Union has expressed concern over the consequences of this termination.
Appen, based in Australia, has played a crucial role in training AI models for several prominent tech giants, including Microsoft, Apple, Meta, Google, and Amazon. In fact, these five companies accounted for 80% of Appen’s revenue in the past. With a vast platform comprising around 1 million freelance workers across more than 170 countries, Appen has been a key player in the AI industry.
Despite its impressive client list and nearly three decades of experience, Appen has faced various challenges in recent years. The company has experienced a decrease in revenue, with a 30% drop in 2023 and a 13% decline the previous year. Appen attributed these declines to challenging external operating and macro conditions. Additionally, the company has struggled with customer loss, executive departures, and plummeting financials.
In August 2020, Appen’s stock reached its peak on the Australian Securities Exchange, with a market cap equivalent to $4.3 billion. However, the stock has since plummeted and is now trading at around 28 Australian cents, experiencing a decline of over 99%. This drastic decrease in stock value reflects the decline in Appen’s overall performance.
Appen’s current struggle to pivot to generative AI is said to be a consequence of weak quality controls and a disjointed organizational structure over the years. While the company has previously worked on projects such as search result evaluation and AI assistance, the demand for training data from generative AI tools has increased significantly. Consequently, Appen’s relevance in the industry has diminished, with companies now investing more in processors like Nvidia rather than relying on Appen’s services.
Prior to the termination of the partnership, Google and Appen have had conflicts, particularly regarding wages. In 2019, Google mandated that its contractors pay their workers a minimum of $15 per hour, a requirement that Appen failed to meet. Although Appen eventually raised the rates for freelancers working on Google products, labor issues persisted. The company faced charges from the U.S. National Labor Relations Board for allegedly terminating six freelancers who spoke out about workplace conditions. The workers were later reinstated.
With the termination of the contract with Google, Appen has expressed its intent to focus on managing costs, turning the business around, and providing customers with quality AI data. Additional details about Appen’s strategic priorities will be revealed in its FY23 full-year results on February 27, 2024.
The termination of the partnership between Alphabet and Appen has had significant implications for both companies. Appen, previously heavily reliant on Alphabet for revenue, will need to navigate the challenges of loss of customers, declining financials, and stock market struggles. This decision highlights the evolving landscape of the AI industry and emphasizes the importance of adaptability and innovation to secure success in the rapidly changing technological landscape.
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