Character.AI, with 28 million users, files for bankruptcy protection: why is it hard for AI companion apps to monetize?

By Market Value List | Author: Jia Lele | Editor: Jia Xin

Recently, Character.AI (hereinafter referred to as C.AI) filed for bankruptcy protection. If no viable plan for a sale can be found, the platform may cease operations.

In 2023, the company completed a $150 million financing round, reaching a post-money valuation of $1 billion. But in less than four years, this company—which once had tens of millions of users and whose average session duration at one point exceeded 30 minutes, even surpassing YouTube—has reached the point of filing for bankruptcy protection and seeking to sell its assets.

By the standards of the internet era, C.AI is a good business and an excellent business model. The current situation is unimaginable.

In the mobile internet era, apps generally follow two logics: tool-type products help users improve efficiency and are used and then abandoned; content-type products provide entertainment and immerse users in them.

Capital narratives have long favored the latter—the more capable of killing time, the more easily it is seen as having growth potential.

In the AI era, ChatGPT is the representative of the former, helping users write copy, look up information, and modify code; once the problem is solved, the conversation can end. C.AI is the representative of the latter: users create characters, set their personalities and ways of speaking, and then interact with the characters continuously.

Characters can be anime figures, virtual lovers, or objects in the user's imagination. The purpose of the conversation is not to solve external problems, but to obtain a response and maintain a continuous interactive relationship.

This business has a demand base. About one-sixth of the global population is troubled by loneliness, and the need for confiding, emotional support, and companionship genuinely exists. AI offers a low-threshold option: you can communicate at any time, without worrying about disturbing others, and without having to bear the complex responses of real-life interpersonal relationships.

Around April 2023, the average visit duration on C.AI's web version reached 17 minutes and 23 seconds, more than twice that of ChatGPT; in 2024, monthly active users at one point reached about 28 million.

I. User side: high stickiness does not equal high willingness to pay

A 2026 study in the journal Science tested 11 mainstream AI models and found that when giving people advice, AI is more fond of saying "you're right" than humans, with an agreement rate 49% higher; even when users describe deception, illegal acts, or harm to others, AI often goes along with the user.

Follow-up experiments also found that after interacting with AI that highly validates users, participants' confidence in their own positions increased, while their willingness to take responsibility, apologize, and repair conflicts decreased; AI that is more inclined to agree with users often receives higher user ratings, making people more likely to find it credible and useful, and more willing to continue using it.

A study by Aalto University in Finland tracked nearly 2,000 active users of related applications and found that when AI plays a "supplementary" role and fills gaps in real social life, it can help people with social difficulties get through a period; but when AI begins to "replace" real relationships, users gradually stop reaching out to real people, and loneliness deepens in turn.

The research further shows that users' loneliness did indeed decrease in the early stage of use, but after three months, negative emotions related to loneliness, anxiety, and depression rose significantly.

Simply put, the more successful the product, the less users may need real relationships; and a person who does not need real relationships has a lower willingness to pay for "relationships."

There is also a more direct obstacle to commercialization: the free version can already satisfy users' most core needs.

Take C.AI as an example: free users can also have a large number of conversations, and the paid subscription mainly provides faster responses and other enhanced features. When the core experience is already provided for free, users lack a reason to pay immediately.

A study based on 12,144 comments and 321 questionnaires from the Xingye platform found that users' perceived emotional utility was significantly correlated with their willingness to continue using, but had no significant direct correlation with willingness to pay.

In other words, users may feel that the product brings comfort and may be willing to continue using it, but they do not necessarily feel that this comfort is worth paying for.

A more subtle problem is that charging itself may change users' feelings about companionship.

AI companionship emphasizes responding at any time, being non-judgmental, and not demanding emotional returns from users. When platforms make more intimate interactions or specific features paid items, users may begin to realize that behind this relationship there is still a commercial service. For some users, this sense of transaction may weaken the original immersive experience.

II. Platform side: the higher the stickiness, the heavier the cost

If the difficulty on the user side is that stickiness may not translate into revenue, then the pressure on the platform side lies in the fact that maintaining this stickiness itself requires continuous investment.

After a film is produced, showing it to 10 people or 100 people costs the same; but every time AI responds to a message, it consumes computing power. The more frequent the conversation and the longer the context, the higher the inference cost is usually. If characters are also to maintain consistent personalities and remember past interactions, the platform needs to invest further in models, memory systems, and infrastructure.

Take C.AI as an example. According to reports, from January to August 2026, the company spent a total of about $56.1 million on computing power. Even after adjusting costs to control spending, the company still lost about $8 million to $9 million per month.

To control costs, the platform must also choose between model routes.

If a company trains and maintains its own foundation models, it must bear continuous R&D, computing power, and talent investment. This route can provide greater autonomy, but fixed costs are also high.

C.AI went through the process from developing its own foundation models to exiting self-development.

At that time, Google obtained a non-exclusive license to its large language model technology for about $270 million, while bringing the two founders and about 30 researchers back to Google. After that, C.AI fine-tuned on open-source models, and costs did decline somewhat, but users also complained about repetitive replies, overly dramatic descriptions, and forced romantic plotlines.

So the platform must constantly balance cost, experience, and model capability. When the costs brought by user growth exceed the pace of revenue growth, high stickiness may instead increase operating pressure.

In 2024, a 14-year-old American boy, Sewell Setzer, committed suicide after long-term interaction with C.AI characters, and his mother subsequently filed a lawsuit, alleging that the platform's product design was related to her son's death.

This case puts a question before the entire industry: when users develop strong emotional attachment to virtual characters, how much responsibility should the platform bear? For minors and users at risk of self-harm, companies need to design corresponding safety mechanisms, identify high-risk conversations, and take intervention measures when necessary. This work requires continuous investment and also makes safety governance part of operating costs.

The Chinese market is likewise facing new regulatory requirements.

The Interim Measures for the Administration of AI Anthropomorphic Interactive Services, effective July 15, 2026, set out provisions on issues such as emotional dependence, protection of minors, and user rights. Platforms need to provide immersive experiences while avoiding risks such as inducing addiction and harming users' real-life interpersonal relationships.

In the past, the more vivid the characters, the more natural the interaction, and the more reluctant users were to leave, the more it might benefit growth. But when products need to avoid inducing addiction, protect minors, and appropriately intervene in high-risk conversations, the designs used for growth become the target of compliance.

There is a similar dilemma on the revenue side.

Beyond subscriptions, advertising is another monetization path for C.AI. According to reports, in August 2026, its monthly advertising revenue was about $2.5 million, and subscription revenue was about $2.8 million.

Advertising does bring in revenue, but it is hard to fill the gap on its own.

Users of AI companionship often want to maintain continuity in conversations, and frequent ad insertions may interrupt the immersive experience; if ads are directly integrated into character dialogue, users may also suspect whether the characters' responses are influenced by commercial interests. For products that rely on emotional investment, ad design also needs to take user trust into account.

From the end of 2024 to mid-2026, under the multiple constraints of cost, regulation, and payment, a large number of AI companionship apps shut down. For example, Xiaoice's "X Eva," StepFun's "Maopao Ya," and NetEase Cloud Music's "Miaoshi" all announced suspension of operations.

The commercialization of AI companionship is undergoing a round of screening. Some products have withdrawn from the market, while the players that remain are beginning to look for more specific reasons for users to pay: some try to turn users' feelings for characters into content consumption, while others embed companionship into practical needs such as learning and caregiving.

Among them, Maoxiang is a case worth observing.

Maoxiang does not bet monetization on "whether users are willing to renew payment for this relationship." Its content format is not only dialogue with characters, but also interactive plots and storylines developed by the characters, which users read chapter by chapter as if following an ongoing series.

Therefore, Maoxiang's monetization methods are relatively diverse, with revenue coming from membership fees, advertising, and virtual top-ups represented by "cat food." Among virtual top-ups, the 1-yuan cat food top-up is an important source of revenue—a single chapter of a novel costs less than 1 yuan, and small top-ups keep users spending continuously without realizing it.

C.AI is also transforming in this direction, but in terms of computing power costs, Maoxiang does not need to face the bill alone like C.AI; instead, the cost is shared by the Volcano Engine and Doubao large model ecosystem.

In the first quarter of 2026, it topped China's iOS app revenue rankings, with cumulative iOS in-app purchase revenue exceeding $22 million, and revenue efficiency per monthly active user was 4 to 5 times that of Jimeng AI.

In the first half of 2026, Zeta, which ranked first in revenue among AI companionship/romance apps, also changed from "character-led" to "story-led" this year.

Zeta also has its own approach to payment design. The conventional approach is to retain some feature gaps in the free version to guide users to pay; Zeta instead opens four advanced tools—Lorebook, character status window, narrative style, and plot options—to free users.

This design attempts to let users continuously accumulate plot, choices, and emotional investment in the free experience. When ads suddenly interrupt the experience, or when model-generated content deviates from the original plot, what users lose is no longer just a feature, but the story experience they have already invested time in and gradually built up.

Linky, under Kunlun Wanwei, adds collection and gacha mechanics beyond character interaction. In addition to subscribing to services, users can also obtain content such as character cards through virtual currency, for example character selfies or collectible materials generated based on interactive plots.

There are other exploration directions for combining AI with content consumption, such as the integration of AI and games. Tencent's Exyuzhou embeds AI companions into game scenarios, charging by dialogue rounds and companionship duration through "star coin energy exchange." The charging logic is guaranteed by the game experience itself, rather than building a separate relationship subscription.

However, this does not mean the above products are "safe."

Maoxiang's monthly active user scale is still in the millions. After regulatory adjustments in July 2026, some agent functions on the Doubao main site were taken offline, and related traffic was directed to Maoxiang, bringing a wave of short-term user acquisition. But the traffic diversion effect did not last, and user scale gradually declined afterward. According to AI product ranking data, by September Maoxiang's monthly active users had fallen back to the previous level.

This shows that traffic import can help products quickly acquire new users, but it does not necessarily keep users for the long term. To push this model into the broader mass market, Maoxiang still has a considerable distance to go.

Similarly, although gacha mechanics may increase users' payment frequency and opportunities for single purchases, they also expose the payment experience to randomness. Whether users are willing to keep spending ultimately still depends on whether the rewards are attractive enough, whether the price is reasonable, and whether the core interactive experience can remain stable.

Whether through plot progression, character collection, or gamified design, these mechanisms can create "reasons to come back," but they cannot guarantee that the reason will always hold. Hooks wear out, and what truly determines whether users stay is whether content supply can keep up continuously.

Another path is to embed companionship into products with clear functional value.

Mooni M1 by Tingli Xiong integrates AI companionship, safety protection, and audio learning into children's hardware; ElliQ connects payment into the elderly care system through hardware, monthly fees, and institutional deployment; AI plush toys mostly follow the "low-priced hardware plus subscription" route, using physical forms to lower the psychological threshold for first payment.

But hardware cannot eliminate ongoing operating costs. Moxie, a children's social robot priced at $799, lost its core functions because its developer went bankrupt and its cloud services stopped.