OpenAI Is a Bad Business

They are working on getting all the market share they get at all costs - it's not that different from Amazon and Google from 20 years ago. Will see how it will work out for them: 20 years ago there were a lot of losers and a very few big winners. Most likely history will repeat itself again, with or without OpenAI.

But now even regulators are working for them - the more regulations are there, the harder it will be for late comers to join.

I think I generally agree with this article, but I have some nitpicks:

"OpenAI (...) has yet to create a truly meaningful product"

Almost everybody I know uses ChatGPT at least semi-regularly for all kinds of things. I'm not sure if it's possible to look at this objectively and claim that ChatGPT isn't "a truly meaningful product."

"OpenAI loses money every single time that somebody uses their product"

I'm not sure if this is true. My understanding is that they (on average, including their free users) make money on usage, but lose money on training. But I could be wrong.

I also think OpenAI isn't yet serious about monetizing its products. You can just go to ChatGPT and use it for free. They have a ton of data about their users that their users give them freely. The free ChatGPT tier is a prime candidate for advertising.

I've tried the alternatives and even running my own models locally. There is just no other solution I could find that comes close to the general utility of ChatGPT for a broad range of use-cases. I hope someone disrupts them, but until then, ChatGPT is to LLMs what Gmail is to email for me. I love to hate them.

Loopt was never profitable.

I am yet to hear of any YC company that succeeded and pointed at Altman as a key factor.

OpenAI only got first mover advantage because it was seen as separate entity that had a higher purpose. Now that the truth is out and others realized that Altman was playing a con the whole time, the competition is catching up and turning them into commodities.

Why do people still put so much stock into him?

"ChatGPT Plus has no real moat" other than the fact that they still have the best models. Competitors can be useful in some situations, but in the general case, GPT-4 (and now o1-preview) are more useful than anything else out there.

And that's before factoring in what other models they are cooking that they're in no hurry to release.

If ChatGPT is so easy to outcompete, where's the competition?

On the other hand: ChatGPT is the fastest-growing consumer product in history.

As long as they remain at in the lead of what could be a humanity changing field I’m not convinced losing money is a certain indicator of a bad business. Definitely not a good sign either but the bet is clearly a long term one. (Or maybe it’s just the classic silicone valley bigger idiot swindle)

> ChatGPT Plus has no real moat, little product differentiation (outside of its advanced voice mode, which Meta is already working on a competitor to), and increasing commoditization from other models, open source platforms, and even on-device models (like on Copilot+-powered PCs).

This is the only thing that matters imo and the biggest open question to me. All the math surrounding this is irrelevant if being the premier genAI API/service is something you can charge good money for (to businesses who likely won't scrimp). Winning that market share battle is worth burning billions for most likely and they are ahead of everyone else.

The purpose of losing money in a venture backed business is to destroy the economics of it for other businesses so it is unprofitable to compete in the same space. Classic dumping tactics but regulators look the other way.

The author, Ed Zitron has been an OpenAI bear for a long time now.

I hold a neutral position on this, I will sit and watch how this plays out.

I had predicted that Uber would not become profitable. But it did eventually.

I'd agree with much of the comments that there's a nebulous amount of moat, but certainly one exists. Pointing this out though, from the outside when AWS and Google's infrastructure was being built, was it obvious they were building significant moats? Also looking at the counter-factual, would it be better for OpenAI just give up their momentum? Really they're choosing the most rational pathway they have, considering all of the partnership deals they've made. The real question is if you can tell they're picking up pennies for the Microsoft steamroller behind them or if they're going to keep revolutionizing. They've got the trackrecord, but it does seem like OpenAI is entering its late Summer-Fall season of growth.

The problem for them is that you have some of the largest companies on earth creating a very similar product and giving it away for free -- possibly just to prevent OpenAI from developing a profitable business model.

A billion in azure "cloud credits" for a company with this level of cloud compute is probably less than a year of runway.

I don’t understand why the article leads with SoftBank. A lot of the other points in the article are pretty good, though I suspect that Microsoft is going to fund OpenAI for a long time since it lets their co-pilot shenanigans go semi-unnoticed. Which may be a little tinfoil, but with stuff like Teams being bundled getting them into regulatory trouble I’d assume they want as little focus on their AI “bundle” as possible. That and a lot of what they invest in OpenAI goes into Azure anyway.

That part, and the points about subscriptions and losses on the dollar comes in later though. Maybe there is something I don’t understand, but I almost stopped reading the article when it touched on the SoftBank investment. How is that even remotely relevant?

When people make claims like OpenAI has no moat, why would Microsoft need them and not just spin up their own LLM?

Of course it is, but when has that stopped anyone in tech from attempting a monopoly anyways? The only thing they can sell is their access to resources and scale. Their LLM's are based on the same research papers as everyone else's. They have no innovations there at all.

Repeat it with me ... "they have no moat"

This article is a joke. The sheer arrogance of publishing content about venture-backed AI businesses when you clearly have no clue about VC or AI...

> OpenAI has not had anything truly important since the launch of GPT-3.5

> [OpenAI] has yet to create a truly meaningful product outside of Sam Altman's marketing expertise

So 4, 4o, o-1, DALL-E, ChatGPT, and their API platform aren't meaningful products?

> To be abundantly clear, as it stands, OpenAI currently spends $2.35 to make $1.

Uh, that's how venture capital works? Uber burnt cash like nobody's business, took SoftBank money, and is now a $175B public profitable company.

> It’s extremely worrying that the biggest player in the game only makes $1 billion (less than 30% of its revenue) from providing access to their models.

Name a single API that hit $1b in revenue in 2-4 years...

For me as someone who was a subscriber and cancelled and permanently deleted my account, the biggest issue with OpenAI is they compete with everyone in an underhanded way where they say you can’t use the output to compete with them. Yet ChatGPT does everything, so who’s really safe from OpenAI? Same deal with Anthropic, Google and XAI. Just a bunch of shady monopolistic companies, who wants to work with / for someone like that? Answer: people who don’t think about how bad it is.

That said, I reckon the vast majority of their subscribers neither read nor care about the true philosophical implications of their terms of use, which gives them millions of people paying to get “brain raped.” Imitating users, stealing users’ jobs, and banning users who attempt to compete with them, can keep OpenAI around for a long time, because that’s the big tech equivalent of taking souls. Not something anyone with morals wants to take part in, but surely possible for that to evolve into a profitable capitalist business model long term.