The generative AI boom should have been Appen’s time to shine. Here’s what went wrong
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.
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
Jakub Porzycki | Nurphoto | Getty Images
Mark Zuckerberg’s announcement this week that Meta would pivot its moderation policies to allow more “free expression” was widely viewed as the company’s latest effort to appease President-elect Donald Trump.
More than any of its Silicon Valley peers, Meta has taken numerous public steps to make amends with Trump since his election victory in November.
That follows a highly contentious four years between the two during Trump’s first term in office, which ended with Facebook — similar to other social media companies — banning Trump from its platform.
As recently as March, Trump was using his preferred nickname of “Zuckerschmuck” when talking about Meta’s CEO and declaring that Facebook was an “enemy of the people.”
With Meta now positioning itself to be a key player in artificial intelligence, Zuckerberg recognizes the need for White House support as his company builds data centers and pursues policies that will allow it to fulfill its lofty ambitions, according to people familiar with the company’s plans who asked not to be named because they weren’t authorized to speak on the matter.
“Even though Facebook is as powerful as it is, it still had to bend the knee to Trump,” said Brian Boland, a former Facebook vice president, who left the company in 2020.
Meta declined to comment for this article.
In Tuesday’s announcement, Zuckerberg said Meta will end third-party fact-checking, remove restrictions on topics such as immigration and gender identity and bring political content back to users’ feeds. Zuckerberg pitched the sweeping policy changes as key to stabilizing Meta’s content-moderation apparatus, which he said had “reached a point where it’s just too many mistakes and too much censorship.”
The policy change was the latest strategic shift Meta has taken to buddy up with Trump and Republicans since Election Day.
A day earlier, Meta announced that UFC CEO Dana White, a longtime Trump friend, is joining the company’s board.
And last week, Meta announced that it was replacing Nick Clegg, its president of global affairs, with Joel Kaplan, who had been the company’s policy vice president. Clegg previously had a career in British politics with the Liberal Democrats party, including as a deputy prime minister, while Kaplan was a White House deputy chief of staff under former President George W. Bush.
Kaplan, who joined Meta in 2011 when it was still known as Facebook, has longstanding ties to the Republican Party and once worked as a law clerk for the late conservative Supreme Court Justice Antonin Scalia. In December, Kaplan posted photos on Facebook of himself with Vice President-elect JD Vance and Trump during their visit to the New York Stock Exchange.
Joel Kaplan, Facebook’s vice president of global policy, on April 17, 2018.
Niall Carson | PA Images | Getty Images
Many Meta employees criticized the policy change internally, with some saying the company is absolving itself of its responsibility to create a safe platform. Current and former employees also expressed concern that marginalized communities could face more online abuse due to the new policy, which is set to take effect over the coming weeks.
Despite the backlash from employees, people familiar with the company’s thinking said Meta is more willing to make these kinds of moves after laying off 21,000 employees, or nearly a quarter of its workforce, in 2022 and 2023.
Those cuts affected much of Meta’s civic integrity and trust and safety teams. The civic integrity group was the closest thing the company had to a white-collar union, with members willing to push back against certain policy decisions, former employees said. Since the job cuts, Zuckerberg faces less friction when making broad policy changes, the people said.
Zuckerberg’s overtures to Trump began in the months leading up to the election.
Following the first assassination attempt on Trump in July, Zuckerberg called the photo of Trump raising his fist with blood running down his face “one of the most badass things I’ve ever seen in my life.”
A month later, Zuckerberg penned a letter to the House Judiciary Committee alleging that the Biden administration had pressured Meta’s teams to censor certain Covid-19 content.
“I believe the government pressure was wrong, and I regret that we were not more outspoken about it,” he wrote.
After Trump’s presidential victory, Zuckerberg joined several other technology executives who visited the president-elect’s Mar-a-Lago resort in Florida. Meta also donated $1 million to Trump’s inaugural fund.
On Friday, Meta revealed to its workforce in a memo obtained by CNBC that it intends to shutter several internal programs related to diversity and inclusion in its hiring process, representing another Trump-friendly move.
The previous day, some details of the company’s new relaxed content-moderation guidelines were published by the news site The Intercept, showing the kind of offensive rhetoric that Meta’s new policy would now allow, including statements such as “Migrants are no better than vomit” and “I bet Jorge’s the one who stole my backpack after track practice today. Immigrants are all thieves.”
Recalibrating for Trump
Zuckerberg, who has been dragged to Washington eight times to testify before congressional committees during the last two administrations, wants to be perceived as someone who can work with Trump and the Republican Party, people familiar with the matter said.
Though Meta’s content-policy updates caught many of its employees and fact-checking partners by surprise, a small group of executives were formulating the plans in the aftermath of the U.S. election results. By New Year’s Day, leadership began planning the public announcements of its policy change, the people said.
Meta typically undergoes major “recalibrations” after prominent U.S. elections, said Katie Harbath, a former Facebook policy director and CEO of tech consulting firm Anchor Change. When the country undergoes a change in power, Meta adjusts its policies to best suit its business and reputational needs based on the political landscape, Harbath said.
“In 2028, they’ll recalibrate again,” she said.
After the 2016 election and Trump’s first victory, for example, Zuckerberg toured the U.S. to meet people in states he hadn’t previously visited. He published a 6,000-word manifesto emphasizing the need for Facebook to build more community.
The social media company faced harsh criticism about fake news and Russian election interference on its platforms after the 2016 election.
Following the 2020 election, during the heart of the pandemic, Meta took a harder stand on Covid-19 content, with a policy executive saying in 2021 that the “amount of COVID-19 vaccine misinformation that violates our policies is too much by our standards.” Those efforts may have appeased the Biden administration, but it drew the ire of Republicans.
Meta is once again reacting to the moment, Harbath said.
“There wasn’t a business risk here in Silicon Valley to be more right-leaning,” Harbath said.
While Trump has offered few specific policy proposals for his second administration, Meta has plenty at stake.
The White House could create more relaxed AI regulations compared with those in the European Union, where Meta says harsh restrictions have resulted in the company not releasing some of its more advanced AI technologies. Meta, like other tech giants, also needs more massive data centers and cutting-edge computer chips to help train and run their advanced AI models.
“There’s a business benefit to having Republicans win, because they are traditionally less regulatory,” Harbath said.
Meta’s CEO Mark Zuckerberg reacts as he testifies during the Senate Judiciary Committee hearing on online child sexual exploitation at the U.S. Capitol in Washington, U.S., January 31, 2024.
Evelyn Hockstein | Reuters
Meta isn’t alone in trying to cozy up to Trump. But the extreme measures the company is taking reflects a particular level of animus expressed by Trump over the years.
Trump has accused Meta of censorship and has expressed resentment over the company’s two-year suspension of his Facebook and Instagram accounts following the Jan. 6 attack on the Capitol.
In July 2024, Trump posted on Truth Social that he intended to “pursue Election Fraudsters at levels never seen before, and they will be sent to prison for long periods of time,” adding “ZUCKERBUCKS, be careful!” Trump reiterated that statement in his book, “Save America,” writing that Zuckerberg plotted against him during the 2020 election and that the Meta CEO would “spend the rest of his life in prison” if it happened again.
Meta spends $14 million annually on providing personal security for Zuckerberg and his family, according to the company’s 2024 proxy statement. As part of that security, the company analyzes any threats or perceived threats against its CEO, according to a person familiar with the matter. Those threats are cataloged, analyzed and dissected by Meta’s multitude of security teams.
After Trump’s comments, Meta’s security teams analyzed how Trump could weaponize the Justice Department and the country’s intelligence agencies against Zuckerberg and what it would cost the company to defend its CEO against a sitting president, said the person, who asked not to be named because of confidentiality.
Meta’s efforts to appease the incoming president bring their own risks.
After Zuckerberg announced the new speech policy Tuesday, Boland, the former executive, was among a number of users who took to Meta’s Threads service to tell their followers that they were quitting Facebook.
“Last post before deleting,” Boland wrote in his post.
Before the post could be seen by any of his Threads followers, Meta’s content moderation system had taken it down, citing cybersecurity reasons.
Boland told CNBC in an interview that he couldn’t help but chuckle at the situation.
“It’s deeply ironic,” Boland said.
— CNBC’s Salvador Rodriguez contributed to this report.
WATCH: Meta is returning to free speech tradition, says Facebook’s former chief privacy officer Chris Kelly
Jaap Arriens | Nurphoto | Getty Images
Apple is losing market share in China due to declining iPhone shipments, supply chain analyst Ming-Chi Kuo wrote in a report on Friday. The stock slid 2.4%.
“Apple has adopted a cautious stance when discussing 2025 iPhone production plans with key suppliers,” Kuo, an analyst at TF Securities, wrote in the post. He added that despite the expected launch of the new iPhone SE 4, shipments are expected to decline 6% year over year for the first half of 2025.
Kuo expects Apple’s market share to continue to slide, as two of the coming iPhones are so thin that they likely will only support eSIM, which the Chinese market currently does not promote.
“These two models could face shipping momentum challenges unless their design is modified,” he wrote.
Kuo wrote that in December, overall smartphone shipments in China were flat from a year earlier, but iPhone shipments dropped 10% to 12%.
There is also “no evidence” that Apple Intelligence, the company’s on-device artificial intelligence offering, is driving hardware upgrades or services revenue, according to Kuo. He wrote that the feature “has not boosted iPhone replacement demand,” according to a supply chain survey he conducted, and added that in his view, the feature’s appeal “has significantly declined compared to cloud-based AI services, which have advanced rapidly in subsequent months.”
Apple’s estimated iPhone shipments total about 220 million units for 2024 and between about 220 million and 225 million for this year, Kuo wrote. That is “below the market consensus of 240 million or more,” he wrote.
Apple did not immediately respond to CNBC’s request for comment.
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