Snap is spinning off its internal generative AI video team into a separate company called Dotmo, citing the high costs of conducting such work internally as a key reason for the move. Although Dotmo will be an independent entity, it will maintain close ties to Snapchat’s parent company.

Under the arrangement, Snap will grant Dotmo a license to adapt its technology for gaming and interactive entertainment platforms. The initial Dotmo team will consist of current Snap employees who are leaving the company to launch the new venture. While Dotmo won’t receive direct funding from Snap, Bobby Murphy, Snap’s chief technology officer, will serve as the lead investor and hold a significant personal stake in the new firm. Murphy will continue working full-time as Snap’s CTO and lead its GenAI research and development efforts.

In exchange for the talent and technology license, Snap will receive a large equity stake in Dotmo—a position that could prove lucrative if the company succeeds. Snap noted that Dotmo may eventually seek outside funding. This marks Snap’s second major spinoff this year, following the earlier separation of Specs into a standalone company focused on smart glasses development.

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Snap’s recent unveiling of Specs wasn’t exactly a home run; the company’s stock dropped after concerns arose about the hefty $2,200 price tag for the new smart glasses. Snap also underwent a round of layoffs earlier this year, cutting about 1,000 jobs. A Snap representative explained that Dotmo represents a different kind of spinoff than Specs, as its team will focus on creating digital experiences that aren’t currently part of Snap’s core business priorities. However, they added that Dotmo could still be considered a partner in the future if the fit seems right.

Spin-offs can serve as a cost-saving strategy for companies, but they also offer other benefits—such as showcasing a particular asset, generating investor interest, or providing operational flexibility for the team involved. By spinning out Dotmo, Snap may be reducing the financial burden of its AI efforts while still maintaining exposure to any potential upside through its equity stake.