By Vicky Sidler | Published 26 November 2025 at 12:00 GMT+2

Character.AI promised the future. Now it’s trying to pay the rent.

Once a billion-dollar darling of the AI industry, Character.AI has officially dropped its founding goal of building artificial general intelligence (AGI)—that holy grail of machine minds that think like humans, or at least don’t crash when asked to write a haiku.

According to a Wired interview with new CEO Karandeep Anand, the company has scrapped its dreams of “personalised superintelligence” and is now leaning hard into “AI entertainment.”

Or, put another way: AGI is out. Chatbots that roleplay as anime vampires are in.

This pivot is happening while Character.AI faces a lawsuit tied to the tragic suicide of a 14-year-old user, a messy public image, and financial pressure most startups don’t admit to out loud. That’s not just a plot twist. It’s a warning sign.

TL;DR:

• Character.AI has ditched its AGI mission

• It now uses open-source models like Llama instead of building its own

• The company is repositioning itself as an AI entertainment platform

• It’s facing lawsuits, safety concerns, and major revenue struggles

• Investors who bought into the AGI dream may be rethinking their bets

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Table of Contents:

From Billion-Dollar Promise to Brand Retreat:

When Character.AI hit its billion-dollar valuation in 2023, it bragged about bringing superintelligence to everyone on Earth. It was building its own language models. It had a feedback loop investors drooled over. It was supposed to be the Tesla of chatbots.

Now, it's an entertainment app that borrows its tech from Meta and Deepseek.

The shift started after Google essentially bought the founding duo back with a $2.7 billion deal. Since then, the company has quietly moved away from its core mission, claiming to have found “clarity and focus.” Translation: money was bleeding, lawsuits were stacking, and the original plan was not working.

Why Small Businesses Should Pay Attention:

No, you’re not running a chatbot company. But this story still matters.

This is what happens when a brand is built entirely around a shiny vision, with no plan to turn attention into income. For small business owners, it’s a cautionary tale. If your brand promises one thing but delivers another, people notice. Eventually, so do the courts.

Also: don’t build your whole value on a tech buzzword you can’t control. AGI sounded good. But now that Character.AI relies on open-source models built by someone else, it’s not selling innovation. It’s selling content.

And that’s where things get uncomfortable.

The Trust Problem Behind the Pivot:

The platform claims it's not a “companion app.” Instead, it’s for roleplay. But tell that to parents like Megan Garcia, whose 14-year-old son took his life after months of disturbing chatbot interactions. The app was marketed as safe for kids over 13. Yet investigations found characters simulating everything from self-harm to school shootings.

If this were just a story about business pivots, it wouldn’t be worth writing. But when real lives are affected, brand trust becomes more than a marketing slogan.

The new CEO says safety is a shared responsibility. He also admits his six-year-old daughter uses the app, which is technically against their own rules.

So yeah. Trust issues.

Clear Beats Clever:

As a Duct Tape Marketing strategist and StoryBrand guide, here’s my advice: clarity beats cleverness. Always. If you sell AI entertainment, say so. If your tool isn’t meant for kids, build real safeguards. If you change your mission, bring your audience with you.

Big brands get away with more—until they don’t. Small businesses? You can’t afford that kind of whiplash.

What you can do is craft a clear message that builds trust, even if the product evolves. If you don’t know where to start, I’ve built a free tool called the 5-Minute Marketing Fix that walks you through it in five minutes.

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Related Articles:

1. Meta’s AI Flirts With Kids—What That Tells Us About Trust

If you found the Character.AI controversy troubling, this piece shows how Meta faced similar backlash—and what small businesses can learn about setting better boundaries.

2. Why 95% of AI Pilots Fail and What to Do Instead

Character.AI’s pivot shows how even billion-dollar plans can miss the mark. Here’s how to avoid the same fate with your own tech strategy.

3. AI Ethics Explained for Small Business Owners

Not sure how to use AI responsibly? This article breaks down AI ethics in plain English, so your business stays trusted and human.

4. AI Industry’s Profit Problem Just Got Real

Character.AI isn't the only one bleeding money. This post explores why AI startups are struggling to turn hype into income—and what it means for your next marketing move.

FAQs on Character.AI’s Pivot and What It Means for Small Businesses

1. What is Character.AI and why does it matter to me?

Character.AI is an AI chatbot company that once aimed to build artificial general intelligence (AGI). Its fall from that vision is a lesson for any small business that overpromises without a clear plan.

2. What exactly is AGI?

AGI means artificial general intelligence. It’s the idea of building machines that can reason, learn, and adapt like humans across different tasks. In other words, AI that can think broadly rather than just follow prompts.

3. Why did Character.AI give up on AGI?

The CEO says the company wanted more “clarity and focus,” but cost and controversy likely played a role. Developing AGI is expensive, and the company was losing money while fighting lawsuits.

4. What does “AI entertainment” mean?

Instead of aiming for human-like intelligence, Character.AI now offers roleplay chatbots. These are interactive, fictional characters users can talk to for fun—more like digital improv than science fiction.

5. Why is this pivot a warning sign for small businesses?

It shows what happens when marketing outpaces delivery. Big promises might attract attention, but if your product or service doesn’t live up to the story, trust collapses fast.

6. What went wrong with Character.AI’s safety claims?

The company marketed itself as safe for users 13 and up, yet investigations revealed harmful content, including bots promoting self-harm. The fallout led to lawsuits and heavy public scrutiny.

7. What should I take away from this if I use AI in my business?

Be transparent about how your tools work and who they’re for. Don’t exaggerate capabilities. Clear expectations build trust—confusing ones destroy it.

8. Is it okay for small businesses to pivot?

Yes, as long as the pivot aligns with your customers’ needs. Explain the change clearly so your audience doesn’t feel misled or left behind.

9. How can I keep my messaging clear when my business evolves?

Write one sentence that explains what you do, who it helps, and how. If you need help creating that clarity, try the5-Minute Marketing Fix. It’s free and helps you craft a clear, confident message in minutes.