States' consumer-protection talks with Character.AI left unresolved
4 Oct 14 2:47 PM · 3d ago · 6 articles · 8 posts · 14 comments · 4 sources · development 4 of 8
A new filing reported by The Verge showed several states had been negotiating with Character.AI to resolve consumer protection concerns when the bankruptcy filing interrupted the process, raising questions about what happens to user data and safety commitments.
“This is likely the first of many. The pets.com of the AI bubble?”
spaf, Mastodon user · mastodon ↗Character.AI AI companion chatbot startupDisney Lead bidder for Character.AI assetsGoogle Prior technology licensor and talent acquirerKarandeep Anand Character.AI CEOJason Koebler 404 Media reporter
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What was reported 1 claim about this development
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first by The Verge, 3d ago
What people said 17 voices · verbatim
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# AI has a problem showing the ROI https://www. 404media.co/character-ais-bank ruptcy-documents-show-the-economics-of-ai-dont-work/?ref=daily-stories-newsletter
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I think the closest analogy we have of the AI boom is the mid 90s browser wars.First all the money went into the browsers like Mosaic then Netscape. Then the browser got commoditized, but that didn't mean the value went away. A better business model came along, and lo and behold, the Chrome browser went open source. The browser became free, and…
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With character.ai filing for bankruptcy, this quote strikes me as funny. “In mid-2025, Character launched in-app advertising […] in early 2026, Character also introduced in-app purchases.” Your AI girlfriend has a wishlist brought to you by Amazon. Of course. Everyone is constantly begging and grifting online, so why not your AI girlfriend. It…
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For what it's worth Michael Burry is pretty much short on the entire thing. At some point(I think mid 2027) those data centers bankrolled by loans will have to start paying rent to investors who bought those loans.If companies that are basing X% of their future earnings on new AI based products don't pay up a bunch of those data centers are not…
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ö-KI-nomie. "The company said that in 2024, the company spent $13.8 million per month on AI compute; in 2025, it spent $10 million per month on AI compute. The company’s subscription revenue peaked at $2.8 million per month, but at times was less than $1 million per month. Its revenue from all sources, including ads, has peaked at $5.3 million per…
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Does it though? It arguably illustrates how the economics of building custom specialized small sub-frontier LLMs and building an service around them that can easily be replicated by open tools wrapping either frontier LLMs for equal or better quality or personally-controlled open LLMs for privacy doesn't work, especially in a market where privacy…
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The economics of AI are terrible. The exact inverse of what VCs normally say they strive for.It’s capital intensive, doesn’t easily scale without linear costs, is basically a commodity, seemingly has negative cashflow forever, and customers aren’t willing to pay what it actually costs. It’s basically the worst tech business model and yet somehow…
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I think it's more nuanced than that. Yes, it's true that the economics are horrible. But it's also true that consumer startups are hard. And then when you tack on legal fees and product changes due to policy concerns, it becomes impossible. Maybe the lesson is that the world isn't ready for a product that targeted minors with fake friends based on…
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> I think it's more nuanced than that.So did they, they just left it for the conclusion> It’s not clear whether AI giants like OpenAI and Anthropic, or the AI industry in general have gotten too big or too important to fail, but Character’s bankruptcy shows that the runway for second-tier players is over.But the current title definitely baits more…
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Character.ai is hardly representative of the AI market. It is at best a tiny sliver. There's coding tools, business process applications and more. Now the AI market likely has some challenges around financing build outs given recent inflation driven interest rates etc. But that's very different from what afflicted character.ai
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It's a bit silly to write an article like this without mentioning the company was hollowed out by Google in 2024.It is difficult to make a company in a fast-growing sector work when all of your technical staff and leadership are working for Google, and your remaining staff can see the writing on the wall and are checking out.
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The headline doesn’t match the story. It is TBD whether the economics of AI actually work or not. A small company (that wasn’t vertically-integrated) going bankrupt doesn’t demonstrate a whole lot, other than that some paths aren’t viable for an AI-based business.
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> It’s capital intensive, doesn’t easily scale without linear costs, is basically a commodity, and customers aren’t willing to pay what it actually costsWhat are some VC funded companies that come to mind that do not fit this profile?
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There are a tonne of AI companion apps out there now, lot of them focused on nsfw, it's going to be interesting to see if character.ai is an isolated case, or if it's a domino effect.
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That seems even less nuanced: bad economics AND they had a potentially illegal product.Perhaps it's more that "consumer startups that want to become a unicorn" are hard.
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Once the models are good enough, the companies can stop selling access to models and start directly competing with the rest of the economy.
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People made the exact same argument for years where Facebook stock stayed around 20 bucks post ipo. I did too and sold like an idiot!
All 8 developments of Character.AI bankruptcy documents expose unsustainable AI… →
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