Following InfectionAI, another star startup collapsed from within. On the morning of March 23, StabilityAI suddenly issued an announcement announcing the resignation of company CEO Emad Mostaque. Following Mostaque's departure, COO ShanShanWong and CTO Chtistian Laforte became the company's interim co-CEOs.
According to Mostaque’s self-report, his shares in StabilityAI accounted for a majority of the company’s voting rights, and these shares and voting rights gave him almost complete control of the board of directors. The absolute concentration of AI power is not good for everyone, so I decided to resign.
This seems to be some kind of heroic act, especially when compared with the direction in which the OpenAI palace battle eventually evolved. It is obvious that Mostaque wants to make his departure a representative event of support for open source and responsible AI governance.
However, not many people seem to fully believe his statement, and not many people are even discussing his departure on Twitter. Under his tweet, a comment pointed out the problem:
So why don't you stay in Stability and solve this problem?
Mostaque's subsequent tweets further deepened this impression. He stated that he would work on decentralized artificial intelligence (DecentralizedAI).
It’s a word he returns to repeatedly, pointing to blockchain. He has been asked repeatedly in the past what exactly this is, and his response has almost always been: Stay tuned.
Yes, this is a CEO who is very interested in the currency circle. In addition to AI conferences, he also likes to attend conferences that combine virtual currency and AI. After expressing his intention to allin this time, he also specifically wrote:
The currency will not be issued at present. If it were to be issued, it would be called a "stablecoin".
Does everything smell familiar?
In this way, StabilityAI, which originally had a good hand, under the leadership of Mostaque, has reached a point where core talents have left one after another, scandals have continued, and business challenges have become increasingly severe. Finally, after "forcing" StableDiffusion's three core authors two days ago, this star company finally got rid of its CEO.
Chaos StabilityAI
Since its establishment, StabilityAI has almost never stopped being involved in various drama scandals, and most of these scandals come from Mostaque himself.
For a technology company, the intellectual property rights of its core technology have been questioned since its establishment. This is the result of Mostaque's "stealing the sky and changing the day".
Things start with the StableDiffusion architecture that StabiliytAI relies on. The former provides the general public with consumer-grade GPU computing power support, allowing them to quickly generate high-quality images through the StableDiffusion content generation model. In many media reports, many people mistakenly believe that StabilityAI is the owner of StableDiffusion. With the three core personnel in the StableDiffusion paper joining the company, this illusion has been created for the outside world.
But in academia, the two are completely separate. According to a long article in Forbes, the source code of StableDiffusion, which made StabiliytAI famous, was actually written by another group of researchers.
Before the release of StableDiffusion, scholars from Germany and the start-up company Runway jointly launched an open source image generator called LatentDiffusion.
Mostaque took someone else's work and wrote his name on it. Mostaque transformed into the new StableDiffusion by providing supercomputing to the LatenDiffusion team, and thus received nearly US$100 million in financing. This round of financing directly pushed StabilityAI's valuation to over US$1 billion.
After the "forced occupation" was revealed, more and more "black materials" about Mostaque's personal life were exposed.
In June 2023, Forbes learned after interviewing more than 30 people (including current employees, former employees, investors, former colleagues, etc.) that during his tenure as StabilityAI CEO, Mostaque had been accused of falsifying his academic qualifications and qualifications, and exaggerating his relationships with partners to gain market trust and attention. He also exaggerated his hedge fund experience, misled investors and customers, and exaggerated an Amazon transaction.
According to public reports, Mostaqu received a bachelor's and master's degree from Oxford University, but according to Forbes' investigation, Mostaqu only received a bachelor's degree and no master's degree. In response to this, Mostaqu was evasive in a subsequent interview with VentureBeat: "I don't have a bachelor's or master's degree because I forgot to send the check for 60 pounds and missed the ceremony."
If embezzlement of research results and falsification of academic qualifications are Mostaqu's personal actions, then the comprehensive crisis faced by StabilityAI today, with most of the core technical team having resigned, is really a "mess".
At the level of commercial competition, StabilityAI faces fierce copyright competition with similar companies. Last week, Midjourney blocked all StabilityAI employees following an alleged data theft incident. The company is also facing lawsuits on both sides of the Atlantic from GettyImages, which claims Stability illegally used 12 million of its photos.
Data copyright disputes and lawsuits continue, and StabilityAI’s business model is gradually being challenged.Forbes reported that three former Stability employees said that before injecting venture capital into the company, Amazon threatened to revoke the company's access to some of its GPUs because the company already owed millions of dollars in bills that had not been paid for months.
In other words, in June 2023, StabilityAI has already begun to default on bills. According to Bloomberg estimates, the company spends about $8 million per month. For comparison, Mostaqu said in X that StabilityAI is expected to earn $3 million in November 2023. Although the tweet was later deleted, even if what he said was true, the revenue could not cover the high costs.
No one can tell how long StabilityAI has been unable to make ends meet, but what is certain is that in December last year, StabilityAI was looking for a move due to huge financial pressure. Mostaqu was asked to resign by the company's important investor, the American hedge fund Coatue.
According to people familiar with the matter at the time, StabilityAI had recently had contact and preliminary discussions with a number of companies regarding acquisitions. One of the potential buyers was competitor Cohere and unicorn Jasper, but this was subsequently denied by StabilityAI.
Data infringement, technology plagiarism, a large number of employee resignations, and no sustainable business model, all relying on financing to burn money, a Vincentian model technology company that seems to be the most important today has also become the most confusing asset from a business perspective.
At present, more people are more concerned about whether SD can still remain open source. After all, this is the basis for the survival of a large number of startups. Although the StableDiffusion framework does not belong to StabilityAI, the company was indeed the first to form the framework into a product and make it open source. At the same time, it continues to iterate highly available versions based on the original framework, which is also the most widely used version at present.
Therefore, compared to Mostaqu’s personal situation, the public is more concerned about the future development of StabilityAI.
AI startups enter the "tide of annexation"
StabilityAI still has many suitors. Clem Delangue, the founder of HuggingFace, posted a post "asking for" opinions, saying that he was considering whether to acquire it.
In fact, Clem Delangue has already predicted the situation of startup companies in 2024.
“In 2024, one of the “hyped” AI companies will go bankrupt or be acquired at a ridiculously low price.”
But speaking out again at this time seemed to echo the prediction at that time, and also revealed its ambition to "harvest at low points".
On the surface, both InflectionAI and StabilityAI expose the same problem: the business model cannot be recycled, and it is difficult to avoid burning money in order to survive.
This seems to be a paradox in the entire history of AI entrepreneurship. Technology entrepreneurship faces huge initial investment, whether it is model training, computing power reserves or product polishing. However, it is precisely because the initial investment is too large that after the first stage of blindly relying on investment to burn money, if you can’t find a business model that can make a positive cycle, investors’ money will sooner or later be burned out.
In the big model realization where everything is happening at an accelerated pace, the moment of burning out comes faster.
StabilityAI's core technology, StableDiffusion, is mainly open source. However, the characteristics of the SD model do not require a large amount of parameters, so the deployment and usage components are relatively lightweight, and it is difficult to design commercial payment points. At the same time, the open source model cannot realize the flywheel of closed-loop data and optimize the model for SD. From a 2C perspective, the current number of users of SD is not at the same level as Midjourney. Although a membership payment model has been launched, most individual users still use the free version.
In fact, even HuggingFace, the “buyer”, is facing commercialization problems. Clem revealed in an interview that HuggingFace mainly uses a typical freemium model. Currently, 15,000 companies use the above services for free. Only a small number of companies actually pay for the services, about 3,000. Paid features include single sign-on, advanced technical support, more powerful computing resources, etc. Companies such as Meta, Bloomberg, Grammerly, etc. are all their paying users.
Clem Delangue also admitted that at present, he has not really found and optimized the way to maximize revenue. He is more concerned about usage and expanding the scale of the platform.
Last year’s star startups seemed to have a collective Mercury retrograde at the beginning of 2024. The deep-seated problems exposed behind this are:Throughout last year, the ammunition of the capital market was concentrated on the head. Start-up companies developed too fast under the "ripening" of capital, and large loopholes in the governance structure that they had no time to take into account were exposed one after another.
It takes one year to quickly complete the journey that many companies have taken for more than ten years, quickly moving from financing to competition, and this will prompt current startups to enter the merger, acquisition and integration stage.
From the current point of view, StabilityAI is still attractive due to its previous achievements and some talents still remaining in the company, and is likely to become the target of competition in the market in the future.
But now it seems that it is the giants that have the ability to swallow up these companies, use enough funds to solve survival problems, and at the same time have a mature and flexible governance system to absorb the most important talents among them. Stability will become the target of competition in the market in the future, and this may be just the beginning.