Anthropic’s revenue growth slowed in the third quarter, disappointing some investors as the AI startup prepares to go public.
There’s an intriguing explanation for at least part of the slowdown: The company may be getting better at stopping rivals from stealing its AI secrets.
Anthropic generated $16.8 billion in revenue during the third quarter, my colleague Stephen Council reported on Wednesday. While that’s impressive growth by almost any standard, it’s a slowdown from earlier in the year.
Here’s where things get interesting.
Anthropic told prospective investors this week that 5% to 7% of its revenue comes from something called distillation, The Information reported.
This is when rival AI developers use Anthropic’s Claude models to help train their own competing systems.
One way to do this is to create thousands of Anthropic accounts and bombard Claude with carefully chosen questions. The rivals collect the answers and use them to teach their own AI models how to perform similar tasks.
All these “distillation” accounts and questions generate revenue for Anthropic, even though the customers are effectively trying to copy its technology.
Anthropic has repeatedly accused Chinese AI companies of doing this and has been cracking down on the practice. And lately, the company has said this effort has been successful.
That creates an unusual problem: Anthropic’s success in protecting its technology could be hurting its reported revenue growth.
It also raises questions about whether some of the company’s spectacular growth earlier this year was artificially boosted by rivals paying to copy its models. It’s unclear how much of the recent slowdown can be attributed to the crackdown.
Indeed, the company told investors this week that revenue from distillation is expected to decline further, according to The Information.
There’s a precedent for this in the tech industry.
When Twitter went public, investors closely watched its user growth. Some accounts were bots rather than actual people, complicating the numbers investors used to judge the company’s health.
Twitter disclosed estimates of fake and automated accounts in its regulatory filings, giving investors more information to assess its growth. The result was that user growth numbers came down.
Anthropic could face a similar challenge as it prepares for an IPO that could value the company at $1.5 trillion or more.
The important distinction is that a decline in distillation-related revenue doesn’t necessarily mean Anthropic’s underlying business is weakening. It could simply mean fewer rivals are paying to exploit its technology.
Of course, competition and other factors could also be slowing growth.
But investors will need to separate genuine customer demand from revenue generated by companies trying to copy Anthropic’s AI.
Sometimes losing customers isn’t such a bad thing.
I asked Anthropic about this on Wednesday and didn’t hear back by Thursday morning.
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