Scale AI Quietly Scrapped Deal With Chinese-Owned TikTok Over Security Concerns

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Scale AI Quietly Scrapped Deal With Chinese-Owned TikTok Over Security Concerns

In the fall of 2022, Scale AI CEO Alexandr Wang saw a huge opportunity: a deal with TikTok where his $7.3 billion AI data-labeling company would provide insights for the social media giant's advertisers.

But as Wang pushed the deal through, members of Scale's leadership panicked, three people with direct knowledge of the matter told Forbes.

Just two years earlier, former President Donald Trump had announced plans to ban TikTok, arguing the app, which is owned by Chinese company ByteDance, posed a threat to U.S. national security.

And TikTok remained the subject of an ongoing national security review inspired by fears that American user data could be accessed by the Chinese Communist Party (a claim TikTok has denied).

Some executives worried that a deal with TikTok might jeopardize future government business, the sources said. But the then 25-year-old Wang, who has said publicly that beating China in the AI race is a matter of national security and has loudly positioned himself as a leader in defense tech, wasn't swayed: The commercial opportunity was too good to turn down. He pushed it through over their objections.

But when Forbes broke the news that TikTok parent company ByteDance had planned to surveil American citizens using the app's geo-location data, Scale reconsidered the deal.

The company told Forbes it ended discussions with TikTok less than a month after the partnership began.

The reputational implications or optics of doing this would be "horrible," Bill Evanina, former director of the U.S. government's National Counterintelligence and Security Center, told Forbes, speaking generally about any deal between a defense contractor and TikTok.

Scale's TikTok reversal was one of a number of issues that some company executives worried might undermine its efforts to build out a government and military business—efforts Wang himself has said are a priority—according to internal communications and interviews with 11 former employees and industry sources.

In interviews with Forbes, John Brennan, Scale's general manager for public sector, said the company doesn't currently have a contract with TikTok; Wang said "no data or money was ever exchanged with TikTok."

Both stressed Scale's commitment to national security and safety, with Wang noting the company was one of seven to sign on to the Biden-Harris administration's voluntary commitment to ensure that AI is safe and secure.

TikTok declined to comment.

Why It Matters: "Scale, which uses human labor to label the data on which AI is trained and has expanded to other data analytics services, began working with the government in 2020," says Forbes senior reporter Kenrick Cai.

"It is now among a handful of tech companies like Palantir and Anduril most vocally courting defense contracts. Between 2020 and the end of the third quarter of 2023, it spent $1.95 million lobbying the federal government, according to lobbying disclosures, and has generated $90 million in public government contracts over the same time period, procurement records show (this figure doesn't include potential non-public contracts).

By 2023, the number of people working on Scale's public sector business had grown to more than 100 employees, the company said. Brennan told Forbes that Scale currently has 20 active government contracts."