Technology

The generative AI boom should have been Appen’s time to shine. Here’s what went wrong

Published

2 years ago

September 6, 2023

admin

Jonathan Raa | Nurphoto | Getty Images

Mike Monegan saw the writing on the wall in January. For weeks, he’d had difficulty sleeping.

As vice president of product management for Australian artificial intelligence software vendor Appen, Monegan and many of his colleagues had been doing their best to keep things afloat as tech behemoths slashed their spending on the company’s AI training data.

Five customers — Microsoft, Apple, Meta, Google, and Amazon — accounted for 80% of Appen’s revenue, and this was supposed to be the company’s moment to shine. Across the industry, companies were committing to hefty investments in generative AI, trying to ensure they weren’t left behind in the sudden race to embed the latest large language models into all of their projects.

Appen has a platform of about one million freelance workers in more than 170 countries. In the past, it’s used that network of people to train some of the world’s leading AI systems, working for a star-studded list of tech companies, including the top consumer names as well as Adobe, Salesforce and Nvidia.

But just as AI’s big moment was arriving, Appen was losing business — and fast. Revenue declined 13% in 2022, a drop the company attributed in part to “challenging external operating and macro conditions.” Former employees, who asked not to be named for fear of retaliation, told CNBC that the company’s current struggle to pivot to generative AI reflects years of weak quality controls and a disjointed organizational structure.

In mid-December, Appen announced a change at the top. Armughan Ahmad, a 25-year veteran of the tech industry, would be taking over as CEO, replacing Mark Brayan, who had helmed the company for the prior seven years. Upon starting the following month, Ahmad called generative AI “one of the most exciting advancements” in the industry and noted that he “was happy to learn that our team has already put the technology to work on our marketing content.”

Monegan wasn’t buying it. He told CNBC that after his first meeting with Ahmad he began looking for another job. Monegan had been watching Appen fall behind, and he didn’t see Ahmad, whose LinkedIn profile says he’s based in Seattle, presenting a realistic path out.

Monegan left in March to help start his own company.

The numbers seem to prove him right.

Despite Appen’s enviable client list and its nearly 30-year history, the company’s struggles have intensified this year. Revenue in the first half of 2023 tumbled 24% to $138.9 million, amid what it called a “broader technology slowdown.” The company said its underlying loss widened to $34.2 million from $3.8 million a year earlier.

“Our data and services power the world’s leading AI models,” Ahmad said on last week’s earnings call. “However, our results are far from satisfactory. They reflect the ongoing global macroeconomic pressures and continued slowdown in tech spending, particularly amongst our largest customers.”

In August 2020, Appen’s shares peaked at AU$42.44 on the Australian Securities Exchange, sending its market cap to the equivalent of $4.3 billion. Now, the stock is trading at around AU$1.52, for a market cap of around $150 million.

‘Resetting the business’

Along with its troubled financials, the company is dealing with a string of executive departures. Helen Johnson, who was appointed finance chief in May, left after just seven weeks in the role. Marketing chief Fab Dolan, whose departure was announced on the earnings call, spent just over two months in the position. The departure of Chief Product Officer Sujatha Sagiraju was also just announced.

“In the environment of a turnaround, we anticipate changes,” a representative for Appen told CNBC.

Elena Sagunova, global human resources director, left in April, followed by Jen Cole, senior vice president of enterprise, in July and Jukka Korpi, senior manager of business development for the Europe, Middle East and Africa Region, in August.

Still, Ahmad said on the earnings call that the company remains “laser-focused on resetting the business” as it pivots to providing data for generative AI models. He added that “the benefits from our turnaround have yet to show meaningful results” and that “the revenue growth does not offset the declines we are experiencing in the remainder of the business.”

Appen’s past work for tech companies has been on projects like evaluating the relevance of search results, helping AI assistants understand requests in different accents, categorizing e-commerce images using AI and building out map locations of electric vehicle charging stations, according to public information and interviews conducted by CNBC.

Appen has also touted its work on search relevance for Adobe and on translation services for Microsoft, as well as in providing training data for lidar companies, security applications and automotive manufacturers.

Depending on the data that a customer requires, an Appen freelancer could be sitting at a laptop to label or categorize images or search results or using Appen’s mobile application to capture the sounds of glass breaking or background noise in a vehicle.

Microsoft is 'naturally and legitimately' well-positioned for A.I.: Griffin Securities

During Appen’s growth years, that manual collection of data was key for the state of AI at the time. But LLMs of today have changed the game. The underlying models behind OpenAI’s ChatGPT and by Google’s Bard are scouring the digital universe to provide sophisticated answers and advanced images in response to simple text queries.

To fuel their LLMs, which are powered largely by state-of-the-art processors from Nvidia, companies are spending less on Appen and a lot more on competitive services that already specialize in generative AI.

Ahmad told CNBC in a statement that, while the company’s financials are being hurt by the economy and a reduction in spending by top customers, “I’m confident that our disciplined focus and the early progress we are making to turn around the business will enable us to capture value from the growing generative AI market and return Appen to growth.”

Cash-strapped

Ahmad said on the earnings call that there’s customer interest in niche types of data that’s more difficult to acquire. For Appen, that would mean finding specialists in particular types of information that can bolster generative AI systems. That also means it needs to expand its base of workers while simultaneously finding ways to preserve cash.

Appen’s cash on hand was $55 million as of June 30, thanks to proceeds from a $38 million equity raise. Prior to the new infusion, cash had been dwindling, from $48 million at the end of 2021 to $23.4 million a year later.

Even before the generative AI transition, wages for Appen’s data labelers were a sticking point. In 2019, Google said its contractors would need to pay their workers $15 an hour. Appen didn’t meet that requirement, according to public letters written by some workers.

In January, after months of organizing, raises went into effect for Appen freelancers working on the Bard chatbot and other Google products. The rates went up to between $14 and 14.50 per hour.

That wasn’t the end of the story. In May, Appen was accused of squeezing freelancers focused on generative AI, allotting strict time limits for time-consuming tasks such as evaluating a complex answer for accuracy. One worker, Ed Stackhouse, wrote a letter to two senators stating his concerns about the dangers of such constrained working conditions.

“The fact that raters are exploited leads to a faulty, and ultimately more dangerous product,” he wrote. “Raters are not given the time to deliver and test a perfect AI model under the Average Estimated Time (AET) model they are paid for,” a practice that “leads raters to spot check only a handful of facts before the task must be submitted,” he added.

In June, Appen faced charges from the U.S. National Labor Relations Board after allegedly firing six freelancers who spoke out publicly about frustrations with workplace conditions. The workers were later reinstated.

Appen employees who spoke to CNBC on behalf of the company in recent months said the rapidly changing AI environment poses challenges. Erik Vogt, vice president of solutions at Appen, told CNBC in May that the sector was in a state of flux.

“There’s a lot of uncertainty, a lot of tentativeness for experimentation, and new startups trying out new things,” Vogt said. “How to make new use cases a reality usually means acquiring unusual data – sometimes astronomical volumes of data, or highly rare resource types. There’s a need for specialists in a wide range of different capabilities.”

For recent projects, Vogt said Appen needed to enlist the help of doctors, lawyers and people with experience using project-tracking software Jira.

“People you wouldn’t necessarily think of as being gig workers, we had to engage with these specialists for these expert systems in a way there hadn’t been a huge demand for before,” Vogt said.

Kim Stagg, Appen’s vice president of product, said the work required for generative AI services was different than what the company has needed in the past.

“A lot of work we’ve done has been around the relevance of search for big engines – a lot of those are more, ‘Is this a hot dog or not,’ ‘Is this a good search or not,'” Stagg said. “With generative AI, we see a different demand.”

One focus Stagg highlighted was the need to find “what we would call really good quality creative people,” or those who are particularly good with language. “And another is domain experts: sports, hobbies, medical.”

However, former employees expressed deep skepticism of Appen’s ability to succeed given its tumultuous position and the executive shuffling taking place. Part of the problem, they say, is the organizational structure.

Appen was divided into a global business unit and an enterprise business unit, which were at one time made up of about five clients and more than 250 clients, respectively. Each had a separate team and communication between them was limited, creating inefficiencies internally, ex-employees said. One former manager said it felt like two separate companies. Appen said that in the last quarter, the company has integrated the global and enterprise business units.

The company’s plunging stock price suggests that investors don’t see the company’s business offerings transferring to the generative AI space.

Lisa Braden-Harder, who served as CEO of Appen until 2015, echoed that sentiment, telling CNBC that “data-labeling is completely different” than how data collection works in a ChatGPT world.

“I am not clear that their past experience of data labeling is a competitive advantage now,” she said.

Former Appen employees say the company has in recent years been dealing with quality control problems, hurting its ability to provide valuable training data for AI models. For example, one former department manager said people would annotate rows of data using automated tools instead of the manual data labeling required for accuracy, which is what clients thought they were buying.

Customers’ expectations of a “clean data set” were often not met, the person said, leading them to leave Appen for competitors such as Labelbox and Scale AI. When the manager started at the company, there were more than 250 clients in the enterprise business unit. Within 18 months, he said, that number had dwindled to less than 100.

Appen told CNBC that in the first half of the year it “secured 89 new client wins.”

Monegan recalled that many customer relationships were “hanging on by a thread.”

Following the earnings report, Canaccord Genuity analysts cut their price target on Appen by more than half to AU$1.56. One concern the analysts referenced was a 34% reduction in spending by Appen’s top customer, a number that Appen wouldn’t confirm or deny.

The more existential problem, the analysts note, revolves around Appen’s effort to win business while also looking to cut costs by 31% in fiscal 2023.

“That seems like a brutal level of cost reduction,” they wrote, as the company tries to stabilize its “core revenue base while growing a business around Generative AI.”

WATCH: AI is the next trend to watch when it comes to smartphones, says market research firm

Technology

Alphabet jumps 3% as search, advertising units show resilient growth

Published

7 hours ago

April 25, 2025

admin

Alphabet jumps 3% as search, advertising units show resilient growth

Alphabet CEO Sundar Pichai during the Google I/O developers conference in Mountain View, California, on May 10, 2023.

David Paul Morris | Bloomberg | Getty Images

Alphabet‘s stock gained 3% Friday after signaling strong growth in its search and advertising businesses amid a competitive artificial intelligence environment and uncertain macro backdrop.

“GOOGL‘s pace of GenAI product roll-out is accelerating with multiple encouraging signals,” wrote Morgan Stanley‘s Brian Nowak. “Macro uncertainty still exists but we remain [overweight] given GOOGL’s still strong relative position and improving pace of GenAI enabled product roll-out.”

The search giant posted earnings of $2.81 per share on $90.23 billion in revenues. That topped the $89.12 billion in sales and $2.01 in EPS expected by LSEG analysts. Revenues grew 12% year-over-year and ahead of the 10% anticipated by Wall Street.

Net income rose 46% to $34.54 billion, or $2.81 per share. That’s up from $23.66 billion, or $1.89 per share, in the year-ago period. Alphabet said the figure included $8 billion in unrealized gains on its nonmarketable equity securities connected to its investment in a private company.

Adjusted earnings, excluding that gain, were $2.27 per share, according to LSEG, and topped analyst expectations.

Amazon sellers raise prices after Trump’s China tariff: ‘It’s unsustainable’

Published

7 hours ago

April 25, 2025

admin

Amazon sellers raise prices after Trump's China tariff: 'It's unsustainable'

An Amazon employee works to fulfill same-day orders during Cyber Monday, one of the company’s busiest days at an Amazon fulfillment center on December 2, 2024 in Orlando, Florida.

Miguel J. Rodriguez Carrillo | Getty Images

For 10 years, Aaron Cordovez has been selling kitchen appliances on Amazon. Now he’s in a bind, because most of his products are manufactured in China.

Cordovez, co-founder of Zulay Kitchen, said his company is moving “as fast as we can” to move production to India, Mexico and other markets, where tariffs are increasing under President Donald Trump, but are mild compared with the levies imposed on goods from China. That process will likely take at least a year or two to complete, he said.

“We’re making our inventory last as long as we can,” Cordovez said in an email.

Zulay is also temporarily raising the price of some of its milk frothers, smores roasting sticks and other products. The company’s popular kitchen strainer now costs $12.99, up from $9.99 before Trump announced his sweeping tariff proposal earlier this month.

Amazon merchants are hiking prices for everything from diaper bags and refrigerator magnets to charm necklaces and other top-selling items as they confront higher import costs. E-commerce software company SmartScout tracked 930 products on Amazon that have seen increased prices since April 9, with an average jump of 29%.

The price hikes affect a range of categories, including clothing, jewelry, household items, office supplies, electronics and toys.

The trade war with China has threatened to upend sellers on Amazon’s third-party marketplace, which accounts for about 60% of the company’s online sales. Many merchants are based in China or rely on the world’s second-largest economy to source and assemble their products.

Sellers are now faced with the conundrum of raising prices or eating the extra costs associated with Trump’s new tariffs. It’s an existential threat for many sellers, who subsist on razor-thin margins and have, for the last several years, dealt with rising costs on Amazon tied to storage, fulfillment, shipping and advertising fees along with pricing pressure from increased competition.

CEO Andy Jassy told CNBC earlier this month that the company was “going to try and do everything we can” to keep prices low for shoppers, including renegotiating terms with some of its suppliers. But he acknowledged some third-party sellers will “need to pass that cost” of tariffs on to consumers.

Amazon’s stock price is down 15% so far this year, sliding along with the broader market. The company reports first-quarter earnings next week.

Watch CNBC's full interview with Amazon CEO Andy Jassy

Goods imported from China now face import duties of 145%, though Trump said Wednesday his administration is “actively” talking with China about a potential deal to lower tariffs. Chinese officials on Thursday denied that trade talks are taking place.

About 25% of the price increases observed by SmartScout were initiated by sellers based in China, said Scott Needham, the company’s CEO. Last week, stainless steel jewelry maker Ursteel hiked prices on four of its products by $6.50, while apparel brand Chouyatou raised the price of some of its dresses by $2. Both businesses are based in China’s Zhejiang province.

Anker, a Chinese electronics brand and one of Amazon’s largest sellers, has raised prices on one-fifth of its products sold in the U.S., including a portable power bank, which went up to $135 from $110, SmartScout data shows.

Representatives from Anker, Ursteel and Chouyatou didn’t respond to requests for comment.

Zulay, headquartered in Florida, is one of many U.S.-based sellers raising prices. The company is also cutting costs. Cordovez said he’s been forced to lay off 19% of his workforce and slash online ad spending by 85%.

Desert Cactus, based in Illinois, is also taking action. Joe Stefani, the company’s president, has been looking to move production of some of his brand’s college-themed merchandise out of China and into Mexico, India and Vietnam. About half of Desert Cactus’ goods come from China, while the rest are made in the U.S., Stefani said.

An Amazon worker moves a cart filled with packages at an Amazon delivery station in Alpharetta, Georgia, on Nov. 28, 2022.

Justin Sullivan | Getty Images

One of the company’s top products is a customizable license plate frame that’s manufactured in China. At the start of Trump’s first term in 2016, Stefani’s company paid import and shipping fees of 4% on the license plates. That rate has since skyrocketed to 170%, he said.

“The tariffs can’t stay this high,” Stefani said. “There’s so many people that just aren’t going to make it.”

Stefani said he expects Desert Cactus will end up raising prices on some products, though he’s worried shoppers might be put off by sticker shock.

“Will someone be willing to pay $50 for a hat on Amazon?” Stefani said. “You know it’s going to be expensive at the ballpark, but on Amazon we don’t know.”

Dave Dama, co-founder of health and beauty business Pure Daily Care, said the price to manufacture one of his skin-care products in China jumped to $25 from $10. Most Amazon sellers will have no choice but to raise prices, he said.

“If you were selling something for $40 and making a $7 or $8 profit at the end of the day, with these tariffs, those days are gone,” Dama said. “You can’t do that anymore. It’s unsustainable.”

Pure Daily Care plans to stagger price increases over several weeks, and only on products “we absolutely need to,” to keep Amazon’s algorithms from ranking it lower in search results or losing the valuable buy box, he said. The buy box determines which listing pops up first when a shopper clicks on a particular product, and the one that gets purchased when they tap “Add to Cart.”

An Amazon spokesperson said the company’s pricing policies continue to apply.

“As always, sellers set their own prices, and we regularly monitor how we highlight great prices as Featured Offers to provide customers with low prices across a wide selection,” the spokesperson said in a statement.

Dama said his company has enough inventory for some products to last up to six months, which it aims to “stretch as long as possible” in the hope that China and the U.S. can reach a trade deal. The company is also forgoing some sales promotions and discounts, while pausing spend on some display and video ads.

Regarding his inventory, Dama said, “We can try to stretch that seven, eight, nine months, which buys us a lot more time for this thing to work out, hopefully.”

Don’t miss these insights from CNBC PRO

Trump tariffs are raising prices on Amazon and threatening to ruin U.S. sellers who source in China

Technology

Pony.ai teams up with Tencent for robotaxi services on WeChat, other apps

Published

12 hours ago

April 25, 2025

admin

A Pony.ai autonomous car.

Pony.ai

Chinese start-up Pony.ai said Friday it will develop autonomous driving technology in partnership with Tencent Cloud and deploy robotaxi services on tech giant Tencent’s WeChat and other applications.

The Nasdaq-listed company which specializes in autonomous vehicle technology, particularly robotaxis and robotrucks, said in a press release that the deal will include cooperation in areas such as cloud services, map data, information security and intelligent cockpit ecosystems.

The arrangement will also see the two companies integrate Pony.ai’s robotaxi ride-hailing services within Tencent’s popular WeChat app as well as other applications like Tencent Maps.

Both companies had been in talks “for quite some time,” Pony.ai CEO James Peng told CNBC on the sidelines of the Shanghai Auto Show on Friday. He cited Tencent’s huge user base and its cloud offerings as factors supporting the “win-win” collaboration as the start-up continues to scale up.

Following the partnership, Peng said that “hopefully in the near future,” users would be able to call Pony.ai robotaxi rides straight through the WeChat app.

WeChat is known as the world’s most popular ‘super app,’ housing everything from messaging to payment transactions to food delivery services, with a monthly user base of over 1 billion people.

“Pony.ai possesses industry-leading autonomous driving technology accumulations, while Tencent excels in cloud services, mapping, and cockpit ecosystem technologies,” Vice President of Tencent Group and President of Tencent Smart Mobility Zhong Xiangping was quoted as saying in the Friday release.

“This strategic partnership between the two parties is not only about complementing each other’s technologies and resources but also marks a new starting point for collaborative innovation,” he added.

Ordering a robotaxi ride on WeChat may soon be possible, says Pony.ai CEO

The release said that the partnership would also see both companies collaborate on the development, testing, and operation of Robotaxis, particularly in L4-level autonomous driving.

According to SAE International, L4 is a type of autonomous driving that allows drivers to take their eyes off the road in designated areas. For comparison, L3 is considered a hands-off system, but drivers must actively monitor the vehicle and be ready to take over the wheel.

The Tencent Cloud agreement comes a day after it was reported that Pony.ai unveiled its L4, seventh-generation robotaxi solution at the Shanghai Auto Show on Wednesday. The company’s shares surged about 40% in the U.S. on Thursday.

The start-up continues to establish itself as a prominent player in China’s autonomous driving industry. The company obtained China’s first permit to charge fares for fully driverless taxis in core parts of a business district of Shenzhen, where Tencent is headquartered.

However, the firm may be implicated in increasing trade tensions between China and the U.S. as the latter is a market Pony.ai considers “hugely important” to its expansion plans.

James Peng, co-founder and chief executive of Pony.ai this week reportedly told the Financial Times that the company is considering a secondary listing outside the U.S. amid mounting concerns that Washington will push for the delisting of Chinese companies off the New York Stock Exchange.

If this were to happen, it would come less than six months after the company’s initial public offering in the U.S. Notwithstanding, Peng told FT that a lot of factors need to be considered.