OpenAI Is A Bad Business

Summary

Summarized wtih ChatGPT

OpenAI, a non-profit AI company that will lose anywhere from $4 billion to $5 billion this year, will at some point in the next six or so months convert into a for-profit AI company, at which point it will continue to lose money in exactly the same way. Shortly after

Highlights from Article

As I’ve said before, I believe there’s also a subprime AI crisis brewing because OpenAI’s API services — which lets people integrate its various models into external products — is currently priced at a loss, and increasing prices will likely make this product unsustainable for many businesses currently relying on these discounted rates.

• Products that depend on cheap AI may be in for a hard time

commoditized. The free version of ChatGPT is effectively identical to the free version of Anthropic’s Claude, Meta’s AI assistant, Microsoft’s Copilot, and even Twitter’s “Grok.” They all use similar training data, all give similar outputs, and are all free. Why would you pay for ChatGPT Plus when Meta or Microsoft will give you their own spin on the same flavor? Other than pure brand recognition, what is it

Both Meta and Google monetize free users through advertising that is informed by their actions on the platform, which involves the user continually feeding the company information about their preferences based on their browsing habits across their platforms. As a result, a “free” user is quite valuable to these companies, and becomes more so as they interact with the platform more.This isn’t really the case with OpenAI. Each free user of ChatGPT is, at best, a person that can be converted into a paying user. While OpenAI can use their inputs as potential training data, that’s infinitesimal value compared to operating costs. U

Just so we’re abundantly clear — this means that OpenAI, unquestionably the leader and most-prominent brand and the first thought anybody will have when integrating generative AI, is only making about $80 million a month selling access to its models?This heavily-suggests that generative AI, as a technology, doesn’t necessarily have a product-market fit.

I realize I’ve been a little repetitive in this piece, but it’s really important to focus on the fact that the leader in the generative AI space does not appear to make that much money (less than 30% of its revenue) helping people put generative AI in their products, and makes most of their money selling subscriptions to a product that mostly coasts on hype. 

All material owns to the authors, of course. If I’m highlighting or writing notes on this, I mostly likely recommend reading the original article, of course.

See other recent things I’ve read here.