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$6.6B raise. The company loses $5B per year. So all this money literally gives them just an extra ~year and change of runway. I know the AI hype is sky high at

• nwiswell 2y ago
  > if they don't make the numbers make sense soon then I don't see things ending well for OpenAI. This is pretty much obvious just from the valuations. The wild bull case where they invent a revolutionary superintelligence would clearly value them in the trillions, so the fact that they're presently valued an order of magnitude less implies that it is viewed as an unlikely scenario (and reasonably so, in my opinion).
  • bpodgursky 2y ago
    It actually represents the scenario where they invent a revolutionary superintelligence that doesn't kill the VCs investing in the firm, and allows them enough control to take profit. In the top range ASI capacity outcomes, the sand god does not return trillions to the VCs. This actually represents only the narrow "aligned" range of AI outcomes, so it makes sense it's a small one.
    • seanhunter 2y ago
      Judging by the ones I have met, the VCs probably believe that any kind of superintelligence would by definition be something that would like them and be like them. If it wasn’t on their side they would take it as incontrovertible proof that it wasn’t a superintelligence.
      • bpodgursky 2y ago
        I am not sure who you have met, but I have mostly talked to VCs with the same range of optimism and concerns regarding AI as normal technologists.
      • sally_glance 2y ago
        Thanks, made me giggle because it rings true! But what if... it's training actually caused it to acquire similar motivation? (Don't want to think about that too much but man just imagine... A superintelligence with Sam Altman mindset)
  • tboyd47 2y ago
    That assumes that the revolutionary superintelligence is willing to give away its economic value by the trillions. (Revolutionary superintelligences are known to be supergenerous too)
    • fnordpiglet 2y ago
      I assume it needs super amounts of hardware and super amounts of energy. No one gets a free ride not even superintelligences or people working for health insurance.
      • Eisenstein 2y ago
        I would put odds on whatever it is generating the revenue having the leverage at the table. 'We pay your salary which allows you to eat' is a poor argument when the opposing one is 'without me your company would be losing money'.
      • tboyd47 2y ago
        That's true. Thankfully, superintelligences are also poor at negotiating and projecting their own income, so you can still make a handsome profit off of them.
  • tptacek 2y ago
    You don't need science fiction to find the bull case for OpenAI. You just have to think it stands to be the "next" Google, which feels increasingly plausible. Google's current market capitalization is in the trillions.
    • azinman2 2y ago
      In 2023 Google had $307.39B in revenue and $24B in profit last quarter (suggesting ~100B in profit this year). Meanwhile OpenAI is losing money and making no where near these sums.
      • tptacek 2y ago
        Facebook got all the way to an IPO with business fundamentals so bad that after the IPO, Paul Graham wrote a letter to all the then-current YC companies warning them that the Facebook stink was going to foul the whole VC market in the following years. Meta is now worth something like 1.4T.
        • yifanl 2y ago
          Facebook made it out by committing click fraud against advertisers on a massive scale, which I don't see as a viable path for sama (even ignoring any legal concerns) considering that openAI isn't a platform company.
          • tptacek 2y ago
            Look, I don't care. At some point we're just arguing about the validity of big tech investing. I don't invest money in tech companies. I don't have a strong opinion about Facebook, or, for that matter, about OpenAI. I'm just saying, you don't need a sci-fi story about AGI to see why people would plow this much money into them. That's all.
            • deleted 2y ago
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  • epolanski 2y ago
    But even if they invent revolutionary super intelligence, big if, what's stopping other companies to follow suit? Talent between these companies moves fast, some start their own. Hell even open source models are nowadays better than the best models this billions burning company had just 6 months ago. I'm lost at what is the moat here, because I really don't see it and I don't believe any of these companies has any advantage at all.
• itsoktocry 2y ago
  >I don't see things ending well for OpenAI. I mean, what exactly do you see happening? The have a product people love and practically incalculable upside potential. They may or may not end up the winners, but I see no scenario in which it "doesn't end well". It's already "well", even if the company went defunct tomorrow. >that clause with that timeline seems a bit risky. I'm 99% certain that OpenAI drove the terms of this investment round, they weren't out there hat in hand begging. Debt is just another way to finance a company, cant really say it's better or worse.
  • talldayo 2y ago
    > The have a product people love and practically incalculable upside potential. ...yet they struggle to find productive applications, shamefully hide their training data and can't substantiate their claims of superhuman capability. You could have said the same thing about Bitcoin and been technically correct, but society as a whole moved in a different direction. It's really not that big of a stretch to imagine a world where LLM capability plateaus and OpenAI's value goes down the toilet. There is simply no evidence for the sort of scaling Sam Altman insists is possible. No preliminary research has confirmed it is around the corner, and in fact tends to suggest the opposite of what OpenAI claims is possible. It's not nuclear fusion or commercial supersonic flight - it's a pipe-dream from start to finish.
  • semanticist 2y ago
    I don't think it really matters how much people love their product if every person using it costs them money. I'm sure people would love a company that sold US$10 bills for 25c, but it's not exactly a sustainable venture. Will people love ChatGPT et al just as much if OpenAI have to charge what it costs them to buy and run all the GPUs? Maybe, but it's absolutely not certain. If they "went defunct" tomorrow then the people who just invested US$6bn and lost every penny probably would not agree with your assessment that it "ended well".
    • lukev 2y ago
      Model training is what costs so much. I would expect OpenAI makes a profit on inference services.
• TZubiri 2y ago
  Same thing was said of Netflix, of Uber, etc... Venture capital loses money to win marketshare, tale as old as time
  • seper8 2y ago
    Were Microsoft, Google, Amazon and Tesla/Twitter(x), and a whole bunch of other gigantic (Chinese aswell) corporations trying to compete for the same market back then? I don't think Netflix and Uber had even a fraction of the competition that this field will have.
    • wslh 2y ago
      I think the simplified question is if OpenAI is a natural monopoly like Google was/is or if that market has a different structure like an oligopoly (e.g. mobile phone market), "perfect" market, etc. On the technological side it seems obvious (does it?) that we can run good models ourselves or in the cloud. What is less clear if there will be a few brands that will offer you a great UX/UI, and the last mile wins.
    • redwood 2y ago
      They totally did in their own ways. Blockbuster. YouTube. Taxis. Google self driving
    • rtsil 2y ago
      Netflix had all the paid TV channels worldwide, physical media sales and video-clubs as competitors. Uber had (still has) taxis. All of these were entrenched competitors with strong moats. It's easy with hindsight to underestimate the forces of Netflix's competitors, but consider that even today, the revenue of Pay TV worldwide is still bigger that the revenue of streaming platforms. And unlike streaming platforms, Pay TV make profits hand over fist and didn't incur crazy debts to gain marketshare. They may be on the way to extinction, but they'll make tons of profits on their way out.
      • zztop44 2y ago
        Netflix and Uber both created new product categories in their respective markets. And both where quite established before there was any real competition in those product categories. Netflix discovered that content was the only moat available to them, after which it was effectively inevitable that they become a major production studio. I think Uber are still trying to figure out their most, but ironically regulation is probably part of it. OpenAI also created a new product category, but the competition was very quick to move into that category and has very deep pockets. At some point, they clearly felt regulation might be a moat but it’s hard to see them landing that and winning.
• hintymad 2y ago
  Most of the loss comes from hefty cost of inference, right? OAI runs on Azure, so everything is expensive at their scale: the data, the compute, and GPU instances, and storage, and etc. I'd venture to guess that they will start building their own data centers with their own inference infra to cut the cost by potentially 75% -- i.e., the gross markup of a public cloud service. Given their cost structure, building their own infra seems cheap.
  • slashdave 2y ago
    I cannot believe they don't already get steep discounts via custom contracts with providers. Someone has to pay for the hardware and electricity.
  • azinman2 2y ago
    Given their scale and direct investments from Microsoft, what makes you think this is any cheaper? They’ll be getting stuff at or near cost from azure, and Azure already exists and with huge scale to amortize all of the investments across more than just OpenAI, including volume discounts (and preference) from nvidia.
    • hintymad 2y ago
      I assumed that Microsoft gave them discount and credits as investment, but the cost by itself is like any other big customer can get.
      • azinman2 2y ago
        Of course the cost isn’t near zero, but is the pricing “at Microsoft’s cost”? If it is, then them building a datacenter wouldn’t save anything, plus would have enormous expenses related to, well, building, maintaining, and continuously upgrading data centers.
        • hintymad 2y ago
          Good point. I updated the assumption accordingly. I assume the cost of using Azure cloud after discount but before the credit will be on par with Azure's big customers. And given the scale of OAI, I suspect that the only way to be profitable is to have their own infra.
• ynabil 2y ago
  OpenAI finances is a bit tricky since most of their expenses are the cloud costs while their biggest investor/shareholder Microsoft invested in them with mostly Azure credit so although their finances seem unsustainable, I think the investors are banking in if the things went bad Microsoft will buy them out and make even small ROI like what they did with Inflection.
• cs702 2y ago
  Yeah, they're buying a bit of time. Everyone involved is hoping OpenAI will either a) figure out how to resolve all these issues before the clock runs out, or b) raise more money before the clock runs out, to buy more time again.
• paulcole 2y ago
  All they have to do in order to make the bet pay off is create a heretofore only imagined technology that will possibly lead us into either a techno-utopia or post-apocalyptic hellscape. I don’t see why that’s so far-fetched?
• Narhem 2y ago
  The AI hype train is like gasoline for somebody’s car. It’s something people pay for to protect themselves against risk.
• JumpCrisscross 2y ago
  > OpenAI has two years to transform into a for-profit business or its funding will convert into debt Last I saw, the whole thing was convertible debt with a $150bn cap. I’m not sure if they swapped structures or this is some brilliant PR branding the cap as the heading valuation.
• nojvek 2y ago
  How does OpenAI manage to spend $5B in one year? Is that mostly spend in building their own datacenters with GPUs?
  • mrbungie 2y ago
    Training and inference costs: Paying for GPU time in Azure datacenters.
• youreth4tguy 2y ago
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• heroprotagonist 2y ago
  My hope is that they verge failure in 2 years, then turn to a non-profit. This in turn gets subsidized by DARPA, who by then realize they're WAY behind the curve on AI and the investment is helpful towards keeping the US competitive in the race to AGI that many believe to be a 'first to the goal wins forever' scenario. And the contingency for this prop-up? OpenAI have to actually be 'open' to receive the money. Inevitably this will result in this one company's eventual decline but it'll push everyone else in the space forward.
• obirunda 2y ago
  I think OpenAi will drop their ambition for AGI and focus on product, they'll never state this of course, but it's clearly telegraphed in this for profit move. Research and safety have to take a backseat for cost reduction. I mean there are many avenues to profitability for them, one I can think of is they could cut their cost significantly by creating smaller and smaller models that match or nearly match Gpt4, while paid subscribers wouldn't be able to really tell the difference. No one is really challenging them on their benchmark claims. I think their main challenge is that in 5-10 years from now, if their current definition of AGI is still elusive, models of Gpt4 capabilities or similar (Llama 3 can fool most people I think) will be running locally and freely on pretty much any OS of choice without having to make a single outside API call. Every app will have access to local inference that neither costs developers nor the users anything to use. Especially after the novelty has worn off a bit, it's hard to see consumers or developers paying up to use something that's technically better but not significantly enough to justify a $20+/mo subscription or per token cost. Right now though, local inference has a huge barrier of entry, especially when you think across platforms. Honestly, I think Google and Apple can afford to spend the cash to develop these models in perpetuity, while OpenAi needs to worry about massive revenue growth for the next few years, and they probably don't really have the personnel to grow revenue aggressively either. It's a research lab. The downside of revenue seeking too, is that sometimes the pursuit kills the product.
  • ywvcbk 2y ago
    > 5-10 years from now > models of Gpt4 capabilities or similar I took Apple how many years to change their bass config memory from 8 GB to 16? Somewhere between 8 and 10.. Regardless, I’m not sure running reasonably advanced models locally will necessarily become that common anytime soon on mainstream devices. $20 per month isn’t that much compared to the much higher HW costs, of course it’s not obvious that OpenAI/etc. can make any money longterm by charging that.
• nickfromseattle 2y ago
  Check out this more in-depth financial analysis: https://www.wheresyoured.at/oai-business/ https://www.wheresyoured.at/oai-business/ > OpenAI's monthly revenue hit $300 million in August, and the company expects to make $3.7 billion in revenue this year (the company will, as mentioned, lose $5 billion anyway), yet the company says that it expects to make $11.6 billion in 2025 and $100 billion by 2029 > For OpenAI to hit $11.6 billion of revenue by the end of 2025, it will have to more than triple its revenue. At the current cost of revenue, it will cost OpenAI more than $27 billion to hit that revenue target. Even if it somehow halves its costs, OpenAI will still lose $2 billion.
• NoGravitas 2y ago
  Valued at $157B, and losing $5B a year. What a price-earnings ratio.
  • tim333 2y ago
    With all new tech you've got to value them on expected future earnings really.