In May, 404 Media wrote that Character.ai’s changes are “what AI enshittification looks like,” with tons of ads, usage limits, guardrails, and “lobotomized” models. In the bankruptcy filing, Adams essentially admits that this enshittification was the strategy: “Character has, however, taken significant steps to reduce its operating burn, including transitioning inference workloads to lower-cost GPU capacity and post-training open-weight models rather than developing proprietary foundation models. At the same time, Character reduced its employee headcount,” he wrote. “In mid-2025, Character launched in-app advertising […] in early 2026, Character also introduced in-app purchases.”
While the lawsuits against Character are significant, they are also not unusual for an AI industry that has been plagued with legal problems relating to the theft of intellectual property and suggesting self harm or violence to their users. In other words, there is nothing in Character’s bankruptcy filings that could not be said about many other AI companies that are spending a huge amount of money on compute without having a revenue model that can support it. The difference between Character AI and behemoths like OpenAI, Anthropic, Meta, and Google is that those other companies have been able to repeatedly get injections of new cash, or, in the case of Meta and Google, have been able to subsidize their AI products with revenue from their massive advertising businesses.
The company said in a blog post that it will continue operating through the bankruptcy process: “The Character.ai platform remains up and running, and you can continue to access all services at this time. We’re focused on finding the best path forward for our platform and community.”
The problem with that theory being that you’re talking about technologies and principles that have been around for more than half a century, and in all that time we’ve never yet figured out how to use them to convincingly emulate conversation the way LLMs can. If what you are describing was possible, we’d have been doing it twenty years ago. People were trying. For Character.ai to have come up with that kind of solution, they’d have to have solved the exact problem that LLMs solved, only with some kind of magical technology with none of the drawbacks of LLMs.
That’s sort of like saying that all Theranos had to do was invent a product that actually did all the magical things they claimed they could do. Sure, yeah, I guess if they’d done that everything would have been fine.