Exclusive: Apple acquires Xnor.ai, edge AI spin-out from Paul Allen’s AI2, for price in $200M range

XNOR.ai computer vision
Xnor.ai’s computer vision tool can recognize objects using software that resides on an Apple iPhone rather than in the cloud. (Xnor.ai Illustration)

Apple has acquired Xnor.ai, a Seattle startup specializing in low-power, edge-based artificial intelligence tools, sources with knowledge of the deal told GeekWire.

The acquisition echoes Apple’s high-profile purchase of Seattle AI startup Turi in 2016. Speaking on condition of anonymity, sources said Apple paid an amount similar to what was paid for Turi, in the range of $200 million.

Xnor.ai didn’t immediately respond to our inquiries, while Apple emailed us its standard response on questions about acquisitions: “Apple buys smaller technology companies from time to time and we generally do not discuss our purpose or plans.” (The company sent the exact same response when we broke the Turi story.)

When we visited Xnor.ai’s office in Seattle’s Fremont neighborhood this morning, a move was clearly in progress — presumably to Apple’s Seattle offices.

The arrangement suggests that Xnor’s AI-enabled image recognition tools could well become standard features in future iPhones and webcams.

Xnor.ai’s acquisition marks a big win for the Allen Institute for Artificial Intelligence, or AI2, created by the late Microsoft co-founder Paul Allen to boost AI research. It was the second spin-out from AI2’s startup incubator, following Kitt.ai, which was acquired by the Chinese search engine powerhouse Baidu in 2017 for an undisclosed sum.

The deal is a big win as well for the startup’s early investors, including Seattle’s Madrona Venture Group; and for the University of Washington, which serves as a major source of Xnor.ai’s talent pool.

The three-year-old startup’s secret sauce has to do with AI on the edge — machine learning and image recognition tools that can be executed on low-power devices rather than relying on the cloud. “We’ve been able to scale AI out of the cloud to every device out there,” co-founder Ali Farhadi, who is the venture’s CXO (chief Xnor officer) as well as a UW professor, told GeekWire in 2018.

Xnor door
Xnor.ai’s office in Seattle’s Fremont neighborhood is mostly unoccupied, with a move clearly in progress. (GeekWire Photo / Taylor Soper)

Xnor.ai also developed a self-service platform that made it possible for software developers, even those who aren’t skilled in AI, to drop AI-centric code and data libraries into device-centric apps.

Those two threads of innovation are woven into the startup’s motto: “AI Everywhere, for Everyone.”

“We make ‘AI everywhere’ a reality by enabling leading global brands to run state-of-the-art deep learning models on anything from a $2 batteryless piece of hardware to the cloud,” Farhadi told GeekWire when Xnor.ai was nominated for an AI innovation award last year. “We empower any developer to deploy countless AI models optimized for the edge with just a single line of code, a future where ‘AI for everyone’ is real.”

The company’s name refers to the XNOR logic gates that are part of the hardware supporting the system.

Madrona and AI2 got Xnor.ai off the ground in 2017 with $2.6 million in seed funding. A year later, Madrona led a follow-up $12 million Series A financing round with additional backing from Autotech Ventures, NGP Capital and Catapult Ventures. When the venture was spun out, it had just six employees. The workforce count is now reportedly upwards of 70 people.

Xnor.ai recently ranked No. 44 on a Forbes list of America’s most promising AI companies. The company notched several notable advances in 2019, including the development of a standalone AI chip capable of running for years on solar power or a coin-sized battery, the debut of an AI-enabled gizmo that can autonomously monitor grocery shelves; and a deal to have its edge-based person recognition technology built into Wyze Labs’ low-cost security cameras.

Xnor engineers with chip
Xnor machine learning engineer Hessam Bagherinezhad, hardware engineer Saman Nderiparizi and CXO Ali Farhadi show off a chip that can use solar-powered AI to detect people. (GeekWire Photo / Alan Boyle)

The ups and downs of the Wyze Labs deal provided the first hints that something big was up with Xnor.ai: In November, Wyze announced that Xnor.ai was unexpectedly pulling out of the deal, and that the Person Detection feature would have to be removed from its cameras in a mid-January firmware update. Wyze promised that it would roll out its own version of the feature later this year.

Despite repeated inquiries, our contacts at Xnor.ai declined to tell us why the company was breaking its ties with Wyze. More recently, the startup trimmed back its online presence to a single Web page with an email link. And for what it’s worth, Xnor.ai’s most recent Twitter update dates back to October.

A Jan. 8 corporate filing with authorities in Delaware, reporting a merger transaction involving Xnor.ai, backed up what we heard from sources about an acquisition.

Apple is no stranger to acquisitions of startups with Seattle connections. The 2016 purchase of Turi, whose software helps large and small organizations make better sense of the data they collect, was the highest-profile purchase — but not the first.

In 2014, the tech giant bought Union Bay Networks, a stealthy cloud networking startup. That acquisition is what led Apple to open a Seattle engineering office that’s become an AI research hub. Over the next few years, it’s due to grow into a 2,000-employee presence in the South Lake Union district, Amazon’s corporate backyard.

In 2017, Apple acquired Lattice Data, a Silicon Valley machine language startup that had three UW computer science alums among its founders and Madrona among its financial backers. The purchase price was reportedly in the range of $200 million, which would be on par with the Xnor.ai and Turi acquisitions.

Xnor.ai will provide Apple with edge computing capabilities that are in line with the Silicon Valley company’s interest in preserving data privacy — an issue that Apple CEO Tim Cook brought to the fore last year.

The issue is at the heart of a fresh controversy focusing on the Justice Department’s request to gain access to an iPhone used by a Saudi military trainee. That trainee, characterized as a terrorist, killed three people and wounded eight others last month during an attack on the grounds of Pensacola Naval Air Station in Florida.

Apple would presumably have a special appreciation for the fact that Xnor.ai’s tools can keep AI data secure on mobile devices rather than sending it to the cloud.

The Xnor.ai acquisition points to Seattle’s rising role as a hotspot for innovations in artificial intelligence and machine learning, fostered by AI2’s incubator and UW as well as home-grown heavyweights such as Microsoft and Amazon. It also points to a rising nationwide tide for AI and its applications.

AI-related acquisitions have spiked in recent years as the technology proliferates in a wide range of software sectors. Investors put a record $9.3 billion into U.S. AI startups in 2018, nearly doubling the previous year’s total. The AI sector is the second-highest emerging area based on deal activity, behind only fintech, according to a Q4 2019 report from PwC.

Axios reported last year that AI acquisitions reflect a need for big tech companies to secure scarce AI expertise. Apple in particular has been hungry for AI startups, leading all tech companies for related acquisitions in 2019, according to CBInsights.

Apple leads Google, Microsoft, Facebook and Amazon in cumulative AI acquisitions. (CBInsights Image)

Last October, AI2 CEO Oren Etzioni and Jacob Colker, who heads AI2’s incubator program, wrote a comprehensive analysis pointing to Apple’s Turi tale as evidence that “an unprecedented acceleration in high-tech startup creation” is on the horizon in Seattle.

“The acquisition of Turi sets the stage for more company creation over time,” they wrote. “The financial windfall from the exit begets angel investors who invest in new startups. The successful exit also whets the appetite for Turi employees to become startup founders of their own. The concentration of talent brought together by Apple creates a talent pool that become early hires of those new startups. And the cycle repeats.”

In retrospect, it’s hard to avoid the feeling that Etzioni and Colker knew more than they were letting on when they wrote their next paragraph: “All the components are now in place for this story to repeat and accelerate.”

GeekWire’s Kevin Lisota contributed to this report.

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