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OpenAI Is a Bad Business
- coreyh14444 2y agoOn the other hand: ChatGPT is the fastest-growing consumer product in history.
- xutopia 2y agoBut as the article suggests it's not making it profitable.
- coreyh14444 2y agoI was around in 1999 when we had this conversation the first time. People openly mocked Google for throwing money down the well. It was a search engine! People Clicked away from Google. They were fools, it was unsustainable, etc etc. Then adwords launched and we know the rest of that story.
- jsheard 2y ago> Then adwords launched and we know the rest of that story. I guess the moral of that story is that OpenAI may be profitable once they start injecting Temu ads into ChatGPT responses. Profitability, but at what cost? They appear to already be working on something along those lines: https://news.ycombinator.com/item?id=41658837 https://news.ycombinator.com/item?id=41658837
- Shog9 2y agoThen you also remember all the other companies that threw money down the well in '99 and didn't pull a rabbit out of their hats in time. Throwing money away isn't the clever bit in the Google story.
- cma 2y agoGoogle did become more an more of a portal though offering weather etc. to keep you from clicking away. Carasols of their own YouTube property videos at the top of each result. Amp links similar to AOL keywords running their own ads inside most of the time, etc.
- __loam 2y agoYou say this but Google has far better retention than openAI does.
- scarface_74 2y agoOr you could cite the thousands of companies that died with a whispers It’s called Survivorship bias
- pornel 2y agoYou're talking about the dotcom bubble! A time in history where enormous amounts of money were thrown down enormous amounts of overhyped wells, and almost all of them turned out to be stupidly bad business. People mocking that waste of money were 99% right, and Google is one of the very few exceptions.
- airstrike 2y agoEarly stage companies care more about growth than profitability. Looking at this arbitrary chart from a quick search[1], OpenAI is likely still at the "young growth" stage [1] https://vlp.teju-finance.com/courses/pluginfile.php/1844/mod_book/chapter/895/cash%20flows%20and%20life%20cycle.png https://vlp.teju-finance.com/courses/pluginfile.php/1844/mod...
- minimaxir 2y agoLoss-leaders tend to grow fast. More importantly, you need a moat to benefit from being a loss-leader and get back to profitability, which OpenAI does not have.
- loandbehold 2y agoChatGPT is the best foundational model. The barrier of entry is high because of high compute costs.
- minimaxir 2y agoHaving the best model, which is debatable even in GPT-4o's case, is not a moat.
- mjamesaustin 2y agoBut if training the model is building the moat, and doing so is highly unprofitable, then the only way for OpenAI to maintain its moat is to continue training better models than the competition, each of which will cost even more money to train and push them further into the red.
- mechagodzilla 2y agoA company giving away money for free could probably beat them (and might lose less money per customer than OpenAI).
- makingstuffs 2y agoThere are more people alive today than there ever has been and those people, generally, have a better means of keeping up to date with new tech/consumer products. Both of those two points alone emphasise the fact that comparing the accelerated growth of a tech company in 2024 to the likes of a Sega Megadrive in the 90s, for example, isn’t a like for like comparison.
- deleted 2y ago[deleted]
- hujkyuyu 2y agoOf 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.
- not_your_vase 2y agoThey 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.
- lgg 2y agoIt really is not the same. Amazon was not profitable because it was building out logistics, and then AWS data centers. There were defensible moats around their business that their growth facilitated. Google built out data centers and fiber, again tangible assets they had that competitors did not. OpenAI's spending is mostly buying compute from other people. In other words, OpenAI's growth is paying for Microsoft's data centers. The only real asset OpenAI is building are their models. While they may be the best models available today it is unclear if that those any durable advantage since everyone in the industry is advancing very quickly, and it is unclear if they can really monetize effectively them without the infrastructure to run them.
- rglullis 2y ago> The only real asset OpenAI is building are their models Which Zuckerberg is doing his best to completely turn them into commodities.
- TyrianPurple 2y ago> Which Zuckerberg is doing his best to completely turn them into commodities By giving them out for free??
- rglullis 2y agoYes, exactly. In the same way that IBM "gave away" investment in Linux to grow their IT Consulting Business revenues.
- deleted 2y ago[deleted]
- joshuamcginnis 2y agoI'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.
- tchalla 2y agoWhat things do you do locally? For me, I found that about 8/10 times - a local model just suffices.
- joshuamcginnis 2y agoCode and biology. For me, the constraints locally are typically quality and speed of generating responses.
- redeux 2y agoThat's an interesting perspective to me since I've gone the opposite way. Claude Sonnet 3.5 beat ChatGPT in every test that mattered to me. Perplexity is a fantastic service when you want gather information or do research a topic, much better than any off-the-shelf LLM imo. I'm not overly surprised that some people have your perspective, since OpenAI has done a great job dominating mind share, but I think if you look at some of the other options you'll find there's a lot of great tools and some of them are even better than ChatGPT. The one caveat I have is that I don't do image generation and it's not very important to me so OpenAI may have the best option there, I don't know.
- airstrike 2y agoClaude Sonnet 3.5 beat which version of ChatGPT?
- adamtaylor_13 2y agoEvery single one of them. I’m not being facetious. Sonnet 3.5 outranks every single OpenAI model on most benchmarks.
- fullshark 2y ago> 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.
- jprete 2y agoBusinesses are interested in AI so they can fire employees and do the same amount of work with much cheaper AI instead. The whole point is to scrimp.
- fullshark 2y agoThere's a wide range of economically attractive cost saving options potentially, that involve replacing employees/contractors with cheaper/fewer Gen AI augmented employees. Perhaps another way to make my point is that in the B2B space you win not just on price, but on reputation also if not primarily (as the people making the decisions are not spending their own money and make decisions primarily to avoid being fired). The competition to OpenAI needs to not just be cheaper to take their business.
- BryanLegend 2y agoTheir moat is the data and feedback they get from their users. Each chat has the potential to learn something from. AB tests. Upvotes & Downvotes. All that feedback has made their product better and they're at a very different scale than everyone else.
- bionhoward 2y agoFor 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.
- minimaxir 2y ago> Just a bunch of shady monopolistic companies "A bunch of monopolistic companies" is an oxymoron. The entire race-to-the-bottom with pricing is because of the lack of moat and open-source pressure.
- wizzwizz4 2y agoIt's because the companies want to be monopolies: they're monopolistic. Groups who aren't monopolistic in this space behave differently.
- nomel 2y ago> they say you can’t use the output to compete with them Their terms of use words it as: > Use Output to develop models that compete with OpenAI. I think this is acceptable for 99.99% of users. > in an underhanded way Could you elaborate on why you see that as underhanded? It's not secret, as it's a bullet point in their TOS, and I don't see how it's dishonest. Billions were put into this model. Not letting the competitors save a good chunk of that seems fairly reasonable, from a "we need to make the billions back eventually" business perspective. I would claim there's a much better chance that Llama is the more underhanded model, existing partly to wipe out/impede competition, including OpenAI, before going behind a pay wall.
- VirusNewbie 2y agoWhen people make claims like OpenAI has no moat, why would Microsoft need them and not just spin up their own LLM?
- minimaxir 2y agoMicrosoft has been publishing many LLMs (notably the Phi series), their work is orthogonal to what OpenAI is doing. There's no need to compete directly. Yet.
- tchalla 2y agoWhy would you go through all the trouble to do it all yourself when you someone else can do it at a fraction of cost plus you having almost full access to it whenever you want, however you want? > "If OpenAl disappeared tomorrow, we have all the IP rights and all the capability. We have the people, we have the compute, we have the data, we have everything. We are below them, above them, around them." ~ Satya Nadella https://x.com/AiBreakfast/status/1770832950722015660 https://x.com/AiBreakfast/status/1770832950722015660
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- Havoc 2y agoAs 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)
- lionkor 2y agoStill haven't seen any evidence of LLMs displaying any kind of intelligence at all, never have. This goalpost has not moved. They are not building AGI, Google is not building a universal search engine, Meta is not building a metaverse you can live in, Crypto isn't replacing fiat currencies, ...
- lambdaba 2y agoForget about terminology, if you've been following developments for a while, you can't help but notice consistent improvements, and the new models are very powerful. I don't care if anybody calls it AGI, whatever they are, they will be massively transformative.
- adamc 2y agoOK. With the best of intentions and real curiosity: How?
- lambdaba 2y agoHow they are better? The o1 models succeed where all other models fail. I don't know how to go more in depth now, but I use Claude, 4o, and o1, both mini and preview in parallel and o1 both mini and preview succeed in many tasks where the others fail.
- adamc 2y agoFuller question: You say they are massively transformative. In why way? How is life or business going to be changed by this tool?
- airstrike 2y ago"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?
- __loam 2y agoClaude is better than gpt-4.
- lambdaba 2y agoo1 is better than Claude at more difficult tasks, I have used and continue to use both extensively
- rsanheim 2y agoDo you find that true for tech / programming tasks, general purpose things, or both?
- deleted 2y ago[deleted]
- airstrike 2y agoNot better than o1-preview based on my subjective experience.
- BryanLegend 2y agoTheir moat is the data and feedback they get from their users. Each chat has the potential to learn something from. AB tests. Upvotes & Downvotes. All that feedback has made their product better and they're at a very different scale than everyone else.
- visarga 2y ago
- devjab 2y agoI 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?
- mvdtnz 2y agoHe explains very clearly in the article why it's relevant.
- devjab 2y agoIt’s exactly that explanation which makes absolutely no sense. Having someone with a history of poor investments bet on you signifies absolutely nothing. Especially not when they’ve done well on some of their investments. Nowhere does the author explain why on earth OpenAI would be desperate to accept what they call “dumb money”. Maybe if it was enough money to buy leadership, but it obviously isn’t. So what is the issue here exactly?
- rlewkov 2y agoRepeat it with me ... "they have no moat"
- ikrenji 2y agoisn't moat the many billion dollars one needs to invest in compute to get these models?
- cjbgkagh 2y agoIt would be if they were the only one with billions of dollars. Perhaps the nuance is that they have a moat but a rather small one with competitors that have credibly signaled that intend to cross it.
- minimaxir 2y agoA barrier to entry is not a moat from the consumer <-> business standpoint.
- kirykl 2y agoNeither did Google by that logic
- cjbgkagh 2y agoGoogle has usage data that no-one else could get access to. It’s the usage data that improved the algorithms that led to more usage data - effectively setting up a natural monopoly. By allowing their search algorithm to atrophy they have given up this moat to the point that others can breach it with LLMs that give similar results without the usage data.
- scarface_74 2y agoAnd neither did the thousands of other companies that disappeared into obscurity.
- minimaxir 2y agoBack in the 2000's, Google became the winner in search engines because they had a good product and gave better results. That was not a moat. Then they expanded into an ecosystem, e.g. Gmail. That was a moat.
- bparsons 2y agoThe 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.
- n_ary 2y agoErm.. no. Kubernetes is OSS, yet very many serious people still pay good money to use hosted and managed K8s anyways because the overhead is too high. Same goes for local models, no one(except hardcore folks) is interested to invest on a beefy GPU or run strange shell command things and suffer laggy subpar response running CPU only models while they can throw some coins at OAI and get all they need. We need to realize that, the target fir current AI wave is NOT tech folks(claude/mistral/cursor et al. serve that group), but business people who want the “gain in productivity”, “fire the expensive employees and get that pat on the back when margins go high and same work get done by AI and some cheap junior mini team”, “quickly prepare that keynote/email/report for random topic”, “want to learn language X by building a wrapper over API” etc.
- InsideOutSanta 2y agoI 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.
- boxed 2y ago> make money on usage, but lose money on training. But I could be wrong. You could be 100% right, and it still could be an unsustainable business. Depending on how much training and R&D costs.
- scarface_74 2y ago“Advertising” is not a sure means of profitability. Yahoo was one of the most trafficked website for years and still not profitable.
- mossTechnician 2y ago> My understanding is that they (on average, including their free users) make money on usage, but lose money on training. Doesn't OpenAI need to continue training just to remain relevant? Not even just because there is a race between multiple AI companies, but because new information is regularly published. And if that's the case, it's just part of the cost, right?
- pavanyellow 2y ago[dead]
- excalibur 2y agoA billion in azure "cloud credits" for a company with this level of cloud compute is probably less than a year of runway.
- deleted 2y ago[deleted]
- rglullis 2y agoLoopt 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?
- greenavocado 2y agoThe 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.
- a13n 2y agoThis 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...
- minimaxir 2y ago> 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. The macroeconomics of venture capital are a bit different now than in the 2010's. OpenAI may be the one case too finanically extreme for conventional VC logic.
- a13n 2y ago> The macroeconomics of venture capital are a bit different now than in the 2010's. If you are growing revenue to $B in <5 years, and creating the fastest growing consumer app in world history, then 2010's VC rules still very much apply today.
- think_build 2y agoI'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.
- returnInfinity 2y agoThe 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.
- teqsun 2y agoI remain skeptical, and I agree with Ed's observations, but I also starting to think that the AI bubble is the only thing holding back a widespread tech depression currently, so I try to remain mostly passive on the topic.
- adamc 2y agoI don't see how the spend can continue a lot longer without some evidence of profits, or at least more potential for profits. I know people aren't going to pay $40 a month for chatgpt as-is.
- teqsun 2y agoThe past decade and ventures like WeWork and Theranos have shown me that profitability doesn't necessarily have bearing over a certain timescale. You can keep the bus rolling for a surprisingly long time before the wheels fall off.