“We lose money on every sale, but we make up for it in volume!”
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When I first heard about this bankruptcy, one of my first thoughts was, here it goes. This is only the very beginning of the landslide though, so it's going to take a while before it reaches the bottom, and it's going to pick up a lot more debris on the way.
Or, as the article optimisitically puts it:
The fate of Character.AI, the controversial AI companion platform, may come to stand as a warning.
Wrong. Character.AI may come to be seen as the first car in the train to derail.
It's the "Pets.com" of AI.
I don’t know. Pets.com failed because they weren’t adequately prepared for their success. AI seems to fail because they overprepared for success that was never coming.
I'm not sure that's an accurate or defensible perspective on why they failed. From Wikipedia:
Pets.com lacked a workable business plan and lost money on nearly every sale because, even before the cost of advertising, it was selling merchandise for approximately one-third the price it paid to obtain the products.[22] Pets.com tried to build a customer base by offering discounts and free shipping, but it was impossible to turn a profit while absorbing the costs of shipping for heavy bags of cat litter and cans of pet food within a business field whose conventional profit margins are only two to four percent.[22][23] The company hoped to shift customers into higher-margin purchases, but customer purchasing patterns failed to change and during its second fiscal year the company continued to sell merchandise for approximately 27% less than cost, so the dramatic rise in sales during Pets.com's second fiscal year only hastened the firm's demise.[22]
That was the nature of the dotcom bubble. Bandwidth costs back then were exponential, whereas revenue was linear. The chatbot bubble instead has the problem of needing to manufacture demand. Different mechanisms to the same results.
A trillion or two will put that train right back on its tracks
AI has two, and only two, paths to monetization. Users pay the server costs, or advertisers.
Not enough users are interested in paying for something they can't trust to be accurate, and I suspect/hope no one will use these tools once they start spewing advertisements from their training data.
Could some of these tools survive on enterprise users alone? Maybe, but businesses are taking on a lot of legal risks when they make the confident guesser bot a key part of their supply chain.
They’re already spewing ads. People are used to it and don’t mind. Also some don’t particularly care about accuracy.
These companies best hope is to lock governments into deals they can’t get out of.
That’s a large practically guaranteed flow of cash that will keep the companies healthy for a long time, off the back of taxpayers.
I'm guessing all the "confidential" chats that the users made with them are now on sale for the highest bidder
Character.AI discovered the one conversation its bots couldn’t keep going: the one with its accountants. $56 million in compute costs in eight months, and the monetization strategy was apparently: hope the next investor is even lonelier than our users. Silicon Valley keeps confusing engagement with a business model.
If LLMs can't be made more power efficient, then the technology isn't ready yet for general use. There may have to be fundamental engineering breakthroughs before what these systems do can be more than a very expensive and inefficient worldwide proof of concept.
Of course, the military and the surveillance industry will still want to keep it, even if no one else can afford it, and we'll be the ones paying for it.
They CAN be made more efficient. Hell, AMD just bought a company that translated LLMs to direct silicon... which should enable scalability if it wasn't for one of the key players owning the tech thus limiting its use.
It's also estimated that some 70% of Claude tokens gets spent on recursive self-correction so the output is higher quality. Instead of bettering the model, Anthropic just keeps throwing money at it to make the problem go away.
Meanwhile Chinese models - as small as 36-40-80b params - are outdoing these fancy frontier models if the right harness is used.
I've spent the last month or so using nothing but a local 27B Qwen model as my coding assistant and it's working fine. The big American AI companies could all collapse in ruins tomorrow and it's not going to slow things down all that much, anyone who wants to use AI will be able to continue using it. Might even be better in the long run if that happens - the people who are scared of ASI will get their much-demanded temporary slowdown at the frontier while everyone else catches up with open-weight models that everyone can use without central control.
Pity about the economy in the meantime, I guess.
anyone who wants to use AI will be able to continue using it
Anyone who's privileged enough to have the hardware.
Open models will still be available via API from third-party hosts. The bigger ones like Kimi K3 or GLM 5.3 don't fit on conventional desktop computers to begin with, most non-institutional users of those would already be doing that (eg via OpenRouter).
The kind of specs that would enable local LLM usage were available on laptops since 2020. The floor for acceptable performance for LLMs stopped literally just before 24+gb of VRAM would have become pretty common in consumer applications. The reason this technology isn’t more ubiquitously available is because ‘they’ thought it would be more profitable to hoover up literally every byte of RAM and GPU in the world rather than let the technology continue to naturally evolve to a place where any consumer could have run useful models on their home computers. In other words, your anger is misplaced.
In other words, your anger is misplaced.
What's your assumption about where my anger is directed?
Yeah the cross over point right now sis somewhere between qwen3.8 27b and glm 5.2/5.3
Like qwen is so close to being good.
Anyone who lacks the skill to to it themselves…
There's not much skill to be had there - It is literally just downloading an app nowadays if you do not want to do anything special, especially on Linux (Newelle is great stuff!). But I am sure there are similar packages available for Windows too.
Excuse my ignorance - I don't have much experience with AI to this point - but what does Newelle have that something like Unsloth or LMStudio does not? What makes it great stuff?
honestly? ease of use. I like Unsloth too, but Newelle is really an easy solution if you just want to use LLMs on you own hardware (or use inference providers) that requires practically no knowledge at all - it is focused on providing something to use LLMs without anything else interfering.
Unsloth does well too, but if i hadn't learnt as much as i already did when i started using it, i would probably have been overwhelmed (outside of it crashing pathetically when following symlinks for local model selection - you can define these directories, but the quick selection then just makes it crash)
Thanks, I appreciate you taking the time to answer.
Np. I actually use Newelle with an fork of llama.cpp that introduces the ability to use ternary models - these work a lot better under tight memory constraints, and achieve performance similar to models with 2-3 times the parameters. Was as easy as installing the fork, starting it and pointing Newelle there instead of the integrated llama.cpp. You can do that with Unsloth too of course, but it's not that smooth.
(if you are interested: https://huggingface.co/prism-ml/collections for the ternary models, https://github.com/PrismML-Eng/llama.cpp for the build that allows for ternary models.)
I'm always running into context limit problems
Wanted to refactor a too large and hectic hacked together state machine into separate functions and reduce redundancy and increase code readability
Every model I've tried failed.
And that should be an easy task an actual AI should be able to handle.
Logic is done, just translate to a different structure.
That should be exactly what they are able to do at least.
None worked, because the project is just to big and interlinked.
I've got 24GB of VRAM, which helps a lot. I'm using the Q4_K_M version of this model, with the KV cache quantized to Q8, and that's able to get me to 128000 tokens of context. I'm using the Qwen Code harness in VS Code.
If 128000 tokens still isn't enough, break the task down into smaller chunks and help the harness out with MCP tools - I installed Codebase Memory to help it navigate large codebases more efficiently, for example. Ask the coding agent what's causing problems and it may be able to help identify solutions too, I've had it troubleshoot itself several times now and it's been quite good at inspecting its own settings and finding where the problems are with them. I even installed Firecrawl for it so it can do its own web searches.
@FaceDeer @eicker @floofloof @fonix232 @naeap When you add the additional codebase memory, that will also add all those mcp tools to each round-trip to the llm model. Do you still see improvements and less filling up if your context? Just curious how it works out; I can imagine that a text based memory that explains the architecture of the codebase would help as well. Not sure about the difference if using a graph to store the code context?
Depends on the framework you're using. I'm using Qwen Code Companion (via a VS Code IDE plugin) and it's got some kind of tiered system built into it for adding tool definitions to context, it's got a standard built-in set that's always mentioned but other stuff only gets added to the context under certain circumstances. I can't recall all the details, I found out about it when I was chatting with Qwen Code to ask it why it hadn't used a particular MCP I'd given it to solve a problem despite it seeming like a useful tool for the task and we got into a discussion about to configure it. As I recall it's something along the lines of most tools only being present in context by default as little one-liner stubs and the agent has to tell the framework "that one looks like it might be useful for what I'm doing" for the full definition to get loaded.
Most of the time I'm working on small scripts and specialized applications these days, and codebase memory is overkill for those so I haven't actually seen it in use much.
More Ram, and break stuff up into smaller pieces. I Have 12Gb of VRAM and 64 Gig System Ram, which - with CPU offloading - allows pretty large models to be used at acceptable speed (although probably not fast enough for someone who wants to make his living with it. But these also will invest in dedicated hardware). And i let a larger model sit there to coordinate, and let it use subagents for the rest. That keeps the Context for the main model a lot more manageable and keeps it on track for a pretty long time.
How you structure the Task is more important than what the task is at all. For example, i have a huge list of games to be catalogued, and just telling the model to search the web and fill in the blanks in the database makes it crap out pretty soon. But I tell it to let subagents handle everything regarding web search and data extraction and just let them hand back the resulting data. the main model then calls another subagent to sanity check the data and update the database. Each of these subagents do not run for long, and therefor never run out of context, while the main model can keep context size manageable because it does not have to work with "messy" data at all.
What kind of hardware do you need to run a model like that? And what do you use :-) ?
I run a 5 bit quantized Qwen 3.8 27b at home on a gaming PC with an RX 7900 XTX and RAG memory using Gemma MoE (i forget what one)running on an old 1080 ti on my Valheim server.
It takes 3-15 minutes to run depending on how many tool calls the model makes and that's mostly memory or web scrapes since that runs on the slower hardware. I mostly just use it as a discord bot to look stuff up for me and to fetch the news.
Sabata, goddess of computing, can I run it on a 32GB system with a 4GB nVidia GPU?
Probably not, or if it runs it may take hours or days to get a full output. VRAM on the GPU really decides what will run reasonably. Try an 8 billion parameter phone sized model and see if its faster than sending a letter, then keep moving up until your setup can't handle it.
8B models are a bit too dumb to use any tools reliably but should handle a basic conversation.
llama cpp will allow you to manually load a model and tweak settings.
unsloth will give you a basic setup with some tools, manage model downloads, and settings.
1080 Ti? But that is 11 GB of VRAM? I know because that is my GPU and the reason I have not tried it. They all call for 12 GB VRAM. I have 64 GB RAM, so 50 GB for the model would be fine.
On the 1080ti I run gemma4:e4b to to do RAG and vision jobs. Not sure the quants and I just run it in Ollama that auto adjust the model because I'm lazy. Not 100% sure but I think mixture of experts load the parts that are needed so there easier on memory. Offloading to CPU memory or swap is a big performance hit.
I tried to run a 300b model on the main PC once, but it took half an hour to get a few words out of it. You can go past the VRAM on the card but sacrifice speed.
The truly silly (and simultaneously neat and fascinating, and to a large extent, very logical and obvious) part is that US attempts to cripple Chinese ML/LLM development by putting most advanced GPU tech behind ITAR has more or less made the Chinese ML industry just write straight up better and more optimized code for the domain.
US and western companies are currently relying on throwing bleeding edge hardware at the problem (read: very obviously brute-forcing the problem), whereas Chinese companies and engineers, having to rely on comparatively less advanced (though still highly capable) hardware has meant they’re staying competitive by optimizing the software layer more effectively.
This has very interesting and likely negative long-term implications for western engineering practices in a lot of ways. And it’s also very much not a new problem - simply throwing compute at things is a mindset that became highly prevalent in the west around when The Cloud became a thing. Previously, you couldn’t just spawn another mainframe in your company’s datacenter, but when it’s as simple as aws ec2 start-instances ..., the barrier to entry for getting more compute is so low that most people were just going “hey, it’s faster”. I feel like the engineering expertise around embedded/baremetal optimization has just been largely evaporating over the last couple decades; in the vast majority of professional software domains, it’s simply not a valued skill anymore (or, more correctly, at the moment). It’s sad for me in several ways - not least of which because I did my degree in EECS, and hardware/software interplay and optimization is an area of engineering that I have always found very interesting.
Is anyone trying to make LLMs with analog computing + memristors? That would make them absurdly efficient
If you’re talking about the company I think you are, that acquisition by AMD is interesting news.
The company was the one with a demo AI in their page that was super quick??
I always figured that was the future of AI when I saw it. Where you’d buy processors with n number of “AI cores” that’d have work/prompts scheduled as needed in the same way we now CPUs and RAM.
lol, I wrote a reply about a company etching onto silicon and then go down and saw yours. Oops.
I hadn't heard AMD bought them though. Looks like they're working on a 20b model as well for this year.
There may have to be fundamental engineering breakthroughs before what these systems do can be more than a very expensive and inefficient worldwide proof of concept.
Controversial thought after reading this sentence: It's cryptocoins all over again.
Cryptocoins deliberately burn more energy doing useless calculations to prevent inflation. That's a little bit of an oversimplification, but I don't feel like explaining the full thing and the vibes are there.
That'd be fine. Cryptocurrency as a whole is still going strong (total market cap is around 3 trillion dollars) and most of the major ones have switched over to energy-free proof-of-stake validation.
If LLMs can’t be made more power efficient, then the technology isn’t ready yet for general use.
Hm, I don't see the harm in powering local models with solar.
Depends. Is it solar energy that started production to power these models? Great! If not, then you're still consuming power and the difference will have to be made somewhere, likely by burning more fossil fuels.
Oh yeah, I mean my own personal solar modules in my backyard. I agree it's not that easy to say "solar exists, checkmate doubters", that would be silly.
Well that is an alternative. But I bet each query to a local 27b model takes less energy anyway than the same query to Claude Opus or Fable in some data centre. So it is also a case of improving energy efficiency by running smaller models.
But without widespread usage there won't be any breakthroughs... Anti-LLM folk could redirect their attention to the core problem (energy source, wind and solar shouldn't raise any concerns) but they prefer to attack the LLMs themselves. Early implementations of every technology were crazy energy ineffective at the moment when becoming practically useful.
No one should be arguing if LLMs are useful or worth investing into, they are and it can be a really useful tool, but the rich (seemingly spinless) lizards have managed to skyrocket the price of RAM, pushed global warming to new extrimes and jacked up electricity prices. Oh and while making an AI bubble so big and fradgile, that when (not if) popped will send us back to the great depression! All in the percute of "the next big thing".
to;dr LLMs are a cool tech but in the percute of it have managed to fuck up a whole bunch
Real story of this bankruptcy is financial shenanigans by Google and VC backers. Google paid "the company" $2.7b in 2024 where the company got nothing, but VC backers got paid, and Google got to rehire 2 AI pioneers that had left google to start the firm. The original vision for company was to revolutionize education where you could create a Socratese or Jesus bot and converse with them as life coaches. Marketplace/users just wanted an AI girlfriend cure for loneliness. Disney's $20m bid for assets is connected to them poaching the remaining shell's CEO.
Sure the company was always going to end up worthless, but it was worth $2.7b on paper at one point. The industry is filled with similar absurdities is a good point by headline and 404 media article.
These grifters have been getting better and better at keeping a lid on their collapse. After all in my lifetime there have been several boom and busts. 1987 was the first crash I was aware of. After all this time they are getting better at staying rich through them and getting away with it.
For real. Banksters and other shitty people don't even see jail time for crashing someone's livelihood.
There are going to be bail outs and a lot of working class people are going to have issues with their retirement funds with this bubble. The rich will always stay rich.
I just got Qwen 3.8 Flash Next running locally. It's damn good on an older machine with a newer GPU. Local LLMs should scare them the most.
Yeah but who's making the models?
Mostly Chinese companies that aren't necessarily required to generate infinitely compounding profits just to continue existing.
Edit: Also third parties such as volunteers who fine tune models for specific purposes. Just like with all software - everyone can learn and contribute when it's open source.
They're easily reproducible as copying and pasting. Then given you have a good enough graphics card you can just run it on your local pc completely offline.
Many groups are making models now. I see a future where we have open source data sources, models, and weights. Niche groups can extend models to be trained on whatever they want.
only open local models are suitable for "companions". Anyone who can be sued cannot risk not "covering their ass legally" responses, which prevents "engagement with casual steering away from (self) harm" while staying in character, instead of corporate's legal department mandate of a textbook response that makes the user find a better AI girlfriend.
I mean sure if your older machine's newer GPU has 200 GB of VRAM to run a decent quant... Fucking hell just Q4 is around 100 gigs and then you'd want a decent amount of KV cache too.
I encourage you to give Qwen 3.8 flash next a try. It's amazing what a typical gaming machine can do with it.
I read it needs 75gb at the minimum quantization? It doesn't seem "typical gaming machine"
It doesn't. Use Strata to run it. Choose the recommended settings it gives you during the install. People can run it with 12GB of VRAM and 32GB of system RAM. It partially loads the most common parts of the model I'm VRAM and swaps from RAM when needed. Rarely it needs to grab from the SSD, but it's swapping while processing so it doesn't seem slow at all. I get around 60-80 tokens per second on average. 16GB VRAM and 48GB RAM.
I get where you are coming from. I thought it would run slow AF as well before I tried it. 😄
If I may ask, which Quantisation are you running it on? I'm on an Apple setup with oMLX and am still experimenting with finding the right balance
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