Appen, an artificial intelligence (AI) data firm based in Australia, has recently faced a setback as Alphabet, the parent company of Google, decided to terminate its contract with the company. This termination was unexpected for Appen, and it will have significant implications for the company’s revenue and its subcontracted workers. This article delves into the details of this decision, sheds light on Appen’s current challenges, and explores the factors contributing to its dilemma.
After a strategic review process, Alphabet informed Appen about its decision to terminate the contract. This termination will take effect on March 19, 2024, significantly impacting Appen’s revenue and operations. With Alphabet accounting for approximately one-third of Appen’s revenue, it is evident that this termination will have far-reaching consequences for the company and its employees. The Alphabet Workers Union estimates that at least two thousand subcontracted Alphabet workers will be affected by this decision.
A Troubled History
Although Appen boasts an impressive client list, including tech giants such as Microsoft, Apple, Meta, Google, and Amazon, the company has been grappling with multiple challenges in recent years. A decline in customers, numerous executive departures, and diminishing financials have plagued Appen despite the increasing demand for AI training data. The company’s revenue dropped by 30% in 2023, following a 13% decline the previous year. Appen attributes this decline partially to challenging external conditions and operating environments.
Financial Fallout
The impact of Alphabet’s contract termination on Appen’s financials cannot be ignored. In 2023, revenue from work with Alphabet amounted to $82.8 million, accounting for a significant portion of Appen’s total sales of $273 million for the year. Notably, Appen’s shares, which reached a peak of AU$42.44 ($27.08) on the Australian Securities Exchange in August 2020, have now plummeted to around 28 Australian cents, representing a decline of over 99% since its peak. Such financial deterioration highlights the severity of Appen’s challenges.
Former employees, speaking on the condition of anonymity, have shed light on the underlying issues within Appen. They claim that the company’s struggle to adapt to generative AI reflects years of weak quality control measures and a disjointed organizational structure. These shortcomings have likely contributed to the decline in customer satisfaction and trust, ultimately impacting Appen’s reputation and ability to secure long-term contracts.
The rapidly evolving AI landscape has also played a role in Appen’s struggles. Large language models (LLMs) such as OpenAI’s ChatGPT and Google’s Bard have emerged, significantly altering the dynamics of the industry. These models utilize vast amounts of data from the internet to generate sophisticated answers and visuals in response to simple text queries. Consequently, companies have shifted their focus from relying on external data providers like Appen to investing in AI infrastructure and processing power.
Conflict with Google Over Wages
Appen and Google have had their share of conflicts in the past, particularly regarding wages. In 2019, Google stipulated that its contractors should pay their workers a minimum of $15 per hour. Appen failed to meet this requirement, as revealed in public letters from some of its workers. Eventually, in January 2023, raises were implemented for Appen freelancers working on the Bard chatbot and other Google products, but labor issues persisted. Appen faced charges from the U.S. National Labor Relations Board after allegedly firing six freelancers who publicly expressed their frustrations with workplace conditions. While these workers were reinstated later, these incidents tarnished Appen’s reputation further.
Appen’s Future Focus
Looking forward, Appen plans to concentrate on managing costs, turning its business around, and providing customers with high-quality AI data. The termination of the Google contract has necessitated an immediate adjustment of strategic priorities. Appen intends to reveal further details regarding its plans in its full-year results announcement on February 27, 2024.
Appen’s termination of its contractual ties with Appen has undoubtedly dealt a significant blow to the company. The loss of Alphabet’s contract, financial struggles, and internal challenges have created a precarious situation for Appen. To regain stability and regain the trust of clients, the company will need to address the issues surrounding quality control, organizational structure, and adapt to the changing landscape of the AI industry. Only by taking decisive actions and implementing effective strategies can Appen hope to overcome these formidable obstacles and secure its position in the AI data market once again.
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