According to CNBC, Meta’s shocking June announcement to invest $14.3 billion in Scale AI primarily to hire founder Alexandr Wang and key employees immediately threw the startup’s future into doubt. OpenAI soon disclosed it was winding down work with Scale, while Google and Elon Musk’s xAI reportedly paused their relationships following the Meta deal. But nearly five months later, Scale CFO Dennis Cinelli insists the 1,000-person company is “alive and well” and not a “zombie company.” Cinelli claims Scale has signed “some of the best deals we have had in the history of our company” in recent months, including a $99 million Department of Defense contract in August followed by another $100 million deal in September. The company, founded in 2016, competes in data preparation with Appen, Surge AI and Mercor while also building custom AI solutions for governments and enterprises.
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The Data Labeling Market Is Changing Fast
Here’s the thing about the data labeling business – it’s becoming increasingly precarious when your biggest customers are also your biggest competitors. When Meta essentially tried to acqui-hire Scale‘s brain trust for $14.3 billion, it sent shockwaves through the industry. And honestly, can you blame OpenAI and Google for getting nervous? They’re training their most valuable AI models using Scale’s services, and suddenly their vendor’s key people might be working for their direct competitor.
But Scale’s pivot to government contracts is actually pretty smart. The Department of Defense partnership and subsequent $100 million deal represent a massive revenue stream that’s arguably more stable than depending on tech giants. Government contracts don’t typically vanish overnight because of competitive concerns. They’re also less likely to build internal labeling teams that could replace Scale entirely.
Is the “Zombie Company” Label Fair?
Look, losing OpenAI, Google, and potentially xAI would cripple most B2B tech companies. That’s not just revenue – that’s credibility. When your marquee customers bail, it creates a domino effect that’s hard to stop. But Scale’s CFO has a point about the government contracts. $200 million in new deals in two months is nothing to sneeze at.
The real question is whether Scale can replace the volume and technical challenge that comes from working with AI leaders. Government work might be lucrative, but does it keep them on the cutting edge of what’s happening in commercial AI? Probably not. And that could hurt their ability to attract top talent long-term.
Basically, Scale finds itself in a weird position – too valuable to die but potentially losing its relevance in the commercial AI race. The government contracts might keep the lights on, but the soul of the company was always in pushing AI forward with the biggest players. Now they need to prove they can do both simultaneously.
