Rabbit has stopped manufacturing its R1 AI hardware device and launched OS3, a standalone "agentic operating system" designed to run across multiple screens, according to a report published Tuesday by Wired. The company delivered more than 100,000 of the orange-red gadgets worldwide with return rates below 5 percent, but it's now pivoting to software that works on devices users already own. The shift marks a reversal for a company that once championed dedicated hardware over smartphone apps, but CEO Jesse Lyu says the R1 was "tremendously successful" from a financial standpoint, earning roughly a 45 to 50 percent margin on the hardware.
Rabbit has deployed around 50 software updates to the R1 over the past year and a half, transforming the device from its launch state at CES 2024, when it received scathing reviews for agentic features that didn't work well. The company raised around $60 million in total and currently employs 15 people, a lean operation compared to other AI studios that raised billions. Financial strain hit the company hard around this time last year when a planned launch in India was blocked by regulations, leading to a handful of employees going on strike and claiming they weren't getting paid. The company has since secured more funding and Lyu says there are no issues with the company's health, while a Discord community of more than 12,000 users now provides feedback on new features.
Lyu says Rabbit made the right technical decisions but faced challenges from limited resources. "Internally, from an engineering perspective—we didn't make the wrong bet," he told Wired, adding that the main obstacle was "being extremely limited in resources, team-wise and money-wise, compared to other AI studios that raised billions of dollars." The company decided against expanding the team and chose to stay lean rather than rush into new hardware, instead focusing on polishing the R1 experience. Lyu has no plans for an R2, but the company's next hardware release, slated to arrive within months, is what he describes as a Cyberdeck—a dedicated "vibe coding" machine that will run OS3.
The new OS3 platform lives in the cloud but connects directly to desktop software, files, and web pages through a local agent node users install on Windows, Mac, or Linux. The system uses a "Bring Your Own Key" approach with no monthly subscription fee, requiring users to supply their own API keys from providers like OpenAI or Anthropic, or link local open source models. One account links up to five machines, with OS3 determining behind the scenes which device should execute a given task. The interface is a single, continuous chat stream where users can paste their intent and the system coordinates the models and tools needed to complete it, supporting universal skill compatibility by allowing users to paste a public URL for any third-party agent skill into the chat for automatic installation.
Anyone can try OS3 starting today through a desktop browser, Telegram on their phone, or even iMessage, making the R1 hardware optional. Lyu has used OS3 to automate tasks like adding weekly sales data from Excel reports to a master sheet by sending a Telegram message to the agent deployed on his PC, and he says the system recently represented him on Slack for a 50-minute conversation with an engineer while he was unavailable. The company says the local agent doesn't store, copy, or sell data, with file contents staying on users' machines, though when a task requires model reasoning, the relevant prompts pass through Rabbit's servers to the model provider. The launch quietly undermines the premise that propelled Rabbit into the spotlight in 2024, suggesting users never needed another pocket gadget to interact with AI when they already had the necessary tools. The strategic retreat from hardware manufacturing to cross-platform software reflects a calculated bet that AI assistants will succeed by adapting to existing workflows rather than demanding dedicated devices, though whether that pivot arrives in time to sustain momentum remains the critical question for a company competing against far better-funded rivals.