Character.AI pivots from AGI to entertainment with 20M monthly users

Character.AI has pivoted from its original mission of building artificial general intelligence to focus on AI entertainment, with new CEO Karandeep Anand announcing the company now serves 20 million monthly active users who spend an average of 75 minutes daily on the platform. The strategic shift comes after Google’s $2.7 billion licensing deal last August and mounting safety concerns following a wrongful death lawsuit, positioning the startup to compete in the rapidly growing AI entertainment market rather than the costly AGI development race.

What you should know: Character.AI has fundamentally changed its business model and technical approach under new leadership.

• The company abandoned its proprietary AI models in favor of open-source alternatives like Meta’s Llama, Alibaba’s Qwen, and DeepSeek, with Anand claiming “open source models are beating any proprietary model hands down.”
• Revenue has grown to a $30 million annual run rate, with projections to reach $50 million by year-end, driven by $10 monthly subscriptions and new advertising features.
• More than 50% of users are Gen Z or Gen Alpha, with the user base being 55% female.

Safety measures: The company has implemented significant changes to address child safety concerns following legal challenges.

• More than 10 of Character.AI’s 70 employees work full-time on trust and safety, representing a “disproportionate amount of resources” according to Anand.
• A separate AI model for users under 18 launched in December, featuring “a narrower set of searchable Characters” with filters removing mature content.
• New parental insights features allow parents to monitor how their teens use the app, part of what Anand calls a “partnership between regulators, us, and parents.”

The big picture: Character.AI is repositioning itself as an entertainment platform rather than an AI companionship service.

• Anand argues that “less than 20 percent of the app gets used for companionship,” with most users engaging in role-play scenarios and fictional storytelling.
• The platform generates more than 9 million new characters monthly, with recent updates including a Gen Z-friendly redesign and new creator tools.
• “Every story can actually have a billion endings,” Anand explains, citing examples like staging “a roast battle between Elon Musk and Jeff Bezos.”

Competitive landscape: The AI companionship market has seen explosive growth, with consumers spending $68 million globally in the first half of this year—a 200% increase from last year.

• Character.AI faces competition from xAI’s companion offerings and Microsoft’s Copilot chatbot.
• The company differentiates itself by emphasizing entertainment over companionship, comparing its platform to video games like Stardew Valley rather than traditional AI assistants.

What they’re saying: Anand emphasizes the entertainment focus while acknowledging ongoing safety responsibilities.

• “What we gave up was this aspiration that the founders had of building AGI models—we are no longer doing that. That is the hundreds of billions of dollars investment fight, which Big Tech is fighting.”
• “Making this platform safe is a partnership between regulators, us, and parents. This has to stay safe for her,” he said, referencing his 6-year-old daughter who uses the platform.
• On content moderation: “Our reactive takedowns are a very, very small percentage” because “content guardrails are baked into the creation pipeline itself.”