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OpenAI is a systemic risk to the tech industry
- saltysalt 2y agoGreat article! It is hard to see an ROI on OpenAI at this stage, or indeed a sustainable business model based on revenue rather than investment.
- moralestapia 2y agoWhile TFA is pretty much a rant and heavily biased towards OpenAI losing, it's quite comprehensive and very well researched, props to the author. There's one sentence that stuck out for me: "as previously discussed, ChatGPT is the only Large Language Model company with any meaningful userbase" I kind of "felt" this was true but never saw the numbers, I followed the link [1], and found this jewel: "Anthropic's Claude: Two million (!) monthly active users on the Claude app, 8.2 million unique monthly visitors to claude.ai." My only reaction is ... HAHAHAHAHAHAHAHAHAHA! I wish I could short that crappy company. 1: https://www.wheresyoured.at/wheres-the-money/ https://www.wheresyoured.at/wheres-the-money/
- esafak 2y agoThat does not capture API usage. I use Claude every day but never through the app. It is very far from crappy. It is top tier.
- azemetre 2y agoI don't think they are differentiating between types of users, just amount of users.
- esafak 2y agoYou can't count the amount of users by looking at app usage; it's not representative.
- moralestapia 2y agoMy two cents of common sense would suggest that API usage looks very similar.
- esafak 2y agoHow would they look similar? I just told you I don't use the app at all, not 50%/50%? Anthropic targets the enterprise, while OpenAI targets the consumer. Anthropic's primary product today is the API.
- moralestapia 2y agoBy similar, I mean that OpenAI API usage should also be disproportionately higher than Anthropic's. But you're free to prove me wrong with some data!
- esafak 2y agoShow me the data. App usage is not reflective of API usage; that should be obvious.
- moralestapia 2y agoI don't have the data, and you know what else I don't have? The burden of proof.
- esafak 2y agoThen feel free to short Anthropic or whatever based on the data you don't have...
- moralestapia 2y agoYou can't short a private company, wtf. But thanks for letting me know the level of discussion that's taking place here, lol.
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- lukeschlather 2y agoAre there any precedents for a subscription service that went from 0 to $5 billion in revenue in two years? I also think, they are doing a ton of expensive R&D, but as far as I can tell that $5 billion in revenue is a profitable and sustainable business. It's not like they're selling compute below cost.
- Taek 2y agoUh, they are selling compute below cost. They are losing money on every subscription.
- snackernews 2y agoIt’s the complete lack of profitability all the way down, from the deep Azure discounts, to OpenAI’s training and inference costing more than it brings in, to all the OpenAI API wrapper apps losing money on OpenAI subscriptions to get some AI into their product. There’s nowhere in the chain that gets anywhere close to zero marginal costs. In any other industry, a business claiming success for selling $100 bills for $50 would be laughed out of the room.
- Analemma_ 2y agoThey went from 0 to $5 billion when they were the only game in town. But now the crown of "best model" changes hands every few weeks, from OpenAI to Anthropic to DeepSeek to Google, and that looks likely to be the case for the foreseeable future. People "in the know" have already stopped treating OpenAI as automatically the best, and this knowledge will diffuse to everyone else over time. Without the best model as a moat anymore, there's no reason to expect OpenAI's growth to continue on the trajectory it used to have.
- bobxmax 2y agoAgreed, though I think it's just going from a 1 horse to a 3 horse race
- lukeschlather 2y agoThis is actually a SaaS product that has good unit economics. I am skeptical of it, but it's not like Tesla or Uber where the unit economics to justify their valuation are simply impossible.
- xnx 2y agoI've liked some of Ed's previous writing, but this is a craaaazy statement: "The Future of Generative AI Rests On OpenAI". OpenAI is an over-hyped, over-priced, and under-performing AI company. Fortunately, the underlying LLM/transformer technology is real and valuable and not at all dependent on OpenAI. It would be good to deflate some of the hype around OpenAI and other non-viable companies.
- bobxmax 2y agoCould you explain how exactly they're under-performing?
- sureok0 2y ago[dead]
- CamperBob2 2y agoo1-pro at $200/month isn't holding up very well compared to Gemini 2.5 Pro at $20/month, for instance. It offers similar benchmark performance at perhaps 10% of the speed.
- bobxmax 2y agoI agree some of their models are losing ground, but blanketing Open AI overall as an overhyped underperforming company because of that is just silly.
- Yizahi 2y agoYou can adjust he headline like this: "The Future of Generative AI (Market) Rests On OpenAI", then it would be more precise. Basically - if OAI crashes, then it will take down all competitors, like bowling pins. No one will erase existing NN software from the hard drives of course.
- xnx 2y agoThat's a good way to think of it. Google, Microsoft, and Adobe will be fine. Not sure where Anthropic would sort out in an OAI crash scenario.
- energy123 2y agoIt's unclear how OpenAI intends to quadruple its revenue? They just doubled their active user count in only a few weeks and their Pro subscription was a new offering as of January. I'd be surprised if their revenue wasn't at least four times larger by the end of this year.
- tecleandor 2y agoBut, is the Pro plan of any use (for OpenAI)? They've told they lose money with it.
- ilrwbwrkhv 2y agoI do not know one person who has bought a pro plan. And especially now where Gemini 2.5 Pro Experimental is leaps and bounds better than their pro plan models.
- sureok0 2y ago[dead]
- ohgr 2y agoI’d be more interested in user retention. Every AI product I’ve seen (from the investment side) does not speak of this. I have seen some data though that suggests user retention is short (3mo avg). People try it, find it’s not that useful or even harmful after the initial experimentation and dump it. Gotta keep hype to keep MRR up though even if it’s from different people. They will run out of interest and new users soon. Going to be a big fall. Models will stagnate on this funding crush and the promises will be gone in a puff of smoke. And everyone will have to unfuck their dependency on it for upselling their existing crap to end users.
- azemetre 2y agoThe author previously wrote an article about dissecting this very question: https://www.wheresyoured.at/wheres-the-money/ https://www.wheresyoured.at/wheres-the-money/ What's interesting is that they stopped reporting monthly active users and prefer weekly active users. The author argues that this is a bad thing, but I'm having trouble understanding why?
- ohgr 2y agoIt’s likely bad because it may show volatility quicker and people will trade on it. That’s bad for the company and the existing users generally. Anyway active users doesn’t matter at all regardless of the period. It’s retention AND active users. The result of having the two figures gives you user base churn. That number is missing.
- SubiculumCode 2y agoWell, I haven't kept any of my subscriptions for longer than 3 months...BUT I'm always subscribed to something... innovation has been so quick, I've just hopped around quite a bit.
- bobxmax 2y agoI don't think you realize how much people use ChatGPT.
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- cs702 2y agoThe title is an exaggeration. OpenAI is a systemic risk only to current tech valuations and to the near-term availability of fresh capital for new AI infrastructure. Whatever happens to OpenAI -- and to valuations, and to the availability of capital -- in the short run, technology will continue to progress, in fits and starts, as always.
- xivzgrev 2y agoTo me it's a red flag when a company takes on Softbank funding. I worked at a portfolio company earlier in my career. Their MO is to offer lots of money at inflated valuation vs domestic investors. This is compelling for founders - lots of money to grow, for less dilution. That said, there's very little value Softbank adds other than the money. No connections, no advice, and it's generally not a helpful long term partnership. They also don't seem to conduct the level of scrutiny that other investors do, because they have so much cash and want to muscle into hot deals. And possibly also because founders wouldn't want to deal with their scrutiny vs domestic options. Ultimately you take the money when you are greedy or don't have other good options. And neither is a good signal. I think Sam is driving as aggressively as he can, given AI seems like a winner takes all type market. Domestic investors are balking at the exponential increase in needed investment amounts given economic uncertainty and lack of justified return. Meanwhile Softbank has been catching up and has been dying to get in on OpenAI. So here's the opportunity. Maybe this works out and OpenAI is going to land this. But more likely, OpenAI is acting like the music is running out soon and they're throwing a hail mary. And Softbank's limited partners are going to be left holding the bag.
- lclc 2y agoWhen your local VC can't keep up with other investors, they make bold claims about intangible things like connections and advice that you can't easily verify. Safer to go with the money.
- bobxmax 2y agoI think the main problem is at a certain point you can't not take Softbank's money... your only alternative is going public
- sureok0 2y ago[dead]
- brown 2y ago> given AI seems like a winner takes all type market Unfortunately for OpenAI and Softbank, it seems like AI will not be "winner take all", and may actually be quite commoditized. It's as easy as choosing a different model in a dropdown in Cursor or whatever your tool of choice.
- Ninjak8051 2y agoProps to the author for the well-researched original article. I disagree with the conclusion. In the current environment, OpenAI can raise money as if were water pouring from a faucet. If SoftBank can't meet its agreements then there are 50 others waiting to take their place. In the current environment, OpenAI's revenue and capital requirements are not meaningful given their ability to raise. The environment can change quickly, look at early year 2000 vs late year 2000 funding for .com for example - money went from on-faucet to you're-not-getting-a-dime in a few months. So if the funding environment for AI suddenly shifts, yes, OpenAI is cooked, but so is the entire AI industrial complex, from the smallest barely-billion-dollar startup all the way up to Nvidia. My conclusion is that OpenAI is not a systemic risk, it's not going to fall or take down a large portion of the tech industry on its own, it will fall if investors sour on the entire AI industry for some reason.
- bobxmax 2y agoYeah, well reasoned take. Hackernews is way too defensive about AI. Open AI didn't go from 0 to $5b because of hype, it got there because of how useful it is.
- bigstrat2003 2y agoI strongly disagree with that, because it's not useful. That company exists on hype alone.
- vonneumannstan 2y agoPeople really don't get it. The Frontier Labs' ability to make money right now is irrelevant. If you build the first AGI you win capitalism. That's what is at stake here. That's potentially worth Trillions/Quadrillions(infinite?) money. Everything else is noise.
- Xiol32 2y agoWhy? Where does the money come from? What's the product? If AGI destroys millions of jobs, who is paying for products?
- vonneumannstan 2y agoOh believe me I'm right there with you but in the few timelines we don't all die this is clearly what's at stake. Altman can crown himself Emperor of the Galaxy...
- owebmaster 1y agoEmperor, right. 1 month in jail and he gets back to his senses.
- myrmidon 2y ago> If you build the first AGI you win capitalism. That's what is at stake here. Why? If you had a GPT version right now that was even more intelligent than an average human, what exactly would change? The big assumption is that you could leverage that into an even bigger lead, but this seems questionable to me-- just throwing twice the compute at it is not going to make it twice as clever. Considering recent efforts, throwing more man(?)-hours into self improvement is also highly likely to run into quickly diminishing returns. Sure, you might get significant market share for services that currently require a human-in-front-of-screen and nothing else, but what prevents your competition from building the exact same thing?
- vonneumannstan 2y ago>Why? If you had a GPT version right now that was even more intelligent than an average human, what exactly would change? This obviates all human labor that can be done on a PC. If you can't imagine how insane that is then I can't help you.
- wrasee 2y agoAs an aside: > Before we go any further: I hate to ask you to do this, but I need your help — I'm up for this year's Webbys for the best business podcast award. I know it's a pain in the ass, but can you sign up and vote for Better Offline? I have never won an award in my life, so help me win this one. What does it mean to canvas people to vote for you without any suggestion that you have - actually listened to the podcast? Goes as far as to undermine the award if there's a suggestion you've received votes from people just because you were good at marketing people to vote for you. Seems to confuse savvy business practice with that of an award for merit.
- SonOfLilit 2y agoThis seems to be a newsletter, so this was originally sent to his return customers.
- wrasee 2y agoExcept when I read it it was an article on a webpage, currently linking from the front page of Hacker News. Perhaps just enough to be an accident, but somewhat fortunate.
- jmull 2y agoSome interesting stuff in the article, but it doesn't substantiate its headline conclusion. Not anywhere close, IMO. E.g., I'm sure Oracle doesn't want to lose $1B on a datacenter, but that's a bruise, not a catastrophic loss to them. I'm sure NVIDIA likes all the OpenAI revenue, but we're talking about how steeply the slope of their revenue line goes up. (They will inevitably face the problem where the line no longer shoots straight up, and a faltering OpenAI could make that happen sooner, but OpenAI itself isn't a life-or-death problem for them.)
- GMoromisato 2y agoHere's some quick math, which I wish the article had made more prominent: If there are 500 million active users and OpenAI is burning $40 billion per year, then at most, each user costs $80 per year or $6.67 per month. That's the upper limit because there are development costs, so the actual operating cost per user is probably half that (maybe $3 per month). Thus even assuming they don't come up with new revenue models, the $20 per month Plus plan is profitable. Moreover, since there are 20 million Plus subscribers, each subscriber is currently subsidizing 24 other users. If they can get the ratio down to 1:6 (each Plus subscriber subsidizing 6 free users), the math would work out and OpenAI would be profitable (at least operationally). And that's assuming that they don't unlock the huge enterprise business models that, IMO, are going to be the real drivers of revenue. The whole article is predicated on OpenAI being unable to find profit, but with the article's own number, it doesn't seem hard to convince investors that profit will be there. [The usual caveats apply: I'm just a random idiot and not a financial analyst. Also, I'm bad at mathing, so please correct me if I'm wrong.]
- lolinder 2y agoClearly it isn't hard to convince investors that profit will be there, they've passed that (pretty low) bar with flying colors so far. The question on everyone's minds is if investors are nuts (which they frequently are). By your numbers, the math they have to make work requires converting to Plus at 4x the rate that they currently do. A 4x increase in conversation rate isn't an optimization, it requires a complete overhaul of their business plan, and we've yet to see any evidence of them having a plan for such an overhaul.
- deleted 2y ago[deleted]
- mppm 2y agoThe article specifically mentions that OpenAI is losing money on all plans, including Plus and Pro. The 500 million number is strongly inflated by those who only use the service on and off.
- FrojoS 2y agoInteresting analysis but not sure it‘s correct. The subscribers are likely consuming much more resources than the free users. A 20$/m user might consume much more than that in compute, thus creating a loss.
- dsjoerg 2y agoIf you want: - Hype deflation - Less VC froth - Fewer bullshit startups - More investment in real tech, not magic-show LLM demos - Open-source and decentralization to win Then OpenAI collapsing would be a net positive in the long run.
- zhivota 2y agoThis guy is verging on a crank at this point, every article I've read from him is just spewing FUD about OpenAI, and AI in general. Just click his name at the top of the article and read the titles. With someone like this, even with tons of cited numbers you have to be very, very careful. The conclusions are motivated, and it would take enormous amounts of time to vet what he's saying, because even though the numbers may be correct, it's what he didn't report that may actually matter.
- GaryNumanVevo 2y agoHe's a guy who ran a PR firm, he has no technical background or experience. He specifically stopped covering crypto because AI "generated more clicks". He only covers OpenAI because it's the one with the biggest brand recognition. He doesn't know anything about the underlying technology. His entire thesis that a single hyped company, that has no moat by the way, is some kind of single point of failure for the entire tech sector.
- rglover 2y ago> His entire thesis that a single hyped company, that has no moat by the way, is some kind of single point of failure for the entire tech sector. It's a perceptual/psychological point of failure, not an actual one. If OpenAI (the "blue chip" of AI) collapses, that will bring all other AI companies—both LLM providers and AI-powered apps—under scrutiny. Not only that, but if OpenAI collapses in a way where their APIs become unavailable (not likely, but possible), all of the products that depend on those APIs will have to scramble to replace them. And replacing an LLM is tricky as parity between them on certain tasks is currently limited. Keep in mind, tech is already in a shaky market. An insane amount of money has been pumped into tech (really, software) with relatively low ROI, both financially and societally. What looked like a burgeoning market was really just a lot of cheap money being pumped into massive gambles for ~10 years. OpenAI collapsing would be a massive stain on the veracity of anything any tech company says. It could accidentally trigger a short-term stock market crash as investors panic flee from tech stocks. If it did, you can bet the vultures in the media will be running hit piece after hit piece about the unreliability of tech, the limited ROI, etc to get eyeballs. That will guaranteed cause mass panic among retail investors (and force the hand of institutional investors).
- Havoc 2y agoIt seems improbable to me that sam doesn't have a plan lined up for this. Also not so sure about systemic risk. Sure there would be a panic & scramble but realistically all the frontier models are reasonably close to each other these days. It's not like there is no substitute at all & market will rebalance pretty fast
- jcranmer 2y agoThis is a rather tediously long article. The summary as I see it: 1. OpenAI hemorrhages money (on the order of $10's of billions a year). 1a. A subargument that this hemorrhaging is rather fundamental--OpenAI isn't anywhere close to breaking even on operational costs, and it seems that OpenAI is getting sweetheart deals on compute that aren't going to last very long. 2. There's very few entities capable of maintaining the pipeline of money that OpenAI desperately needs. 3. Most of those (this article claims) are unwilling to stump for the cash. 4. OpenAI's capital expenditures (this article claims) are a major (if not existential) source of revenue for its suppliers, so if OpenAI implodes, it presents a risk to many other tech companies as well via the network of suppliers. The problem with this article is that, as much as I might be inclined to agree with it based on my priors, I just don't see any actual plausible way that OpenAI implodes spectacularly like that. If the funding dries up, the most likely scenario to me is that OpenAI undergoes a crunch mode where it tries to eke out an operational profit while begging everybody else (including probably the government) to finance capital expenditures at a reduced rate. Instead of a big bang like Lehman Brothers was, it instead would look a lot more like a longer, slower decline where the tech industry underperforms the market rather than explosively driving it.
- zhivota 2y agoAlso, didn't Deepseek demonstrate that enormous compute is not a pre-requisite? All these analyses completely ignore the possibility of a breakthrough in the technology that drives costs down by orders of magnitude.
- light_hue_1 2y agoThat's not at all what DeepSeek showed. It showed that a single training run of a particular model could be done with a massive amount of compute, but not so massive that only OpenAI/Google/etc. can do it. Definitely not you nor I, or a university, or a mid-tier company. In any case, that's small potatoes here. OpenAI spends most of its money not on training, but on inference. Inference is still way too expensive. Even if inference got cheaper that's not great for OpenAI. It means that other people will launch a similar chat experience for fewer dollars. Fundamentally, OpenAI needs a moat. And it has nothing.
- returnInfinity 2y agoEd Zitron is a permanent Open AI bear. Every few months he publishes a bear case. Brad Gerstner from Altimeter capital makes a bull case, you need to listen to him as well. Then make up your own thesis about OpenAI, LLMs and AI.
- FrankWilhoit 2y agoMajor premise: We need a miracle. Minor premise: OpenAI would be a miracle. Conclusion: OpenAI is what we need.
- blotfaba 2y agoShow us on the doll's ATM's number pad how much money Zuck paid you to write this
- tim333 2y agoA lot depends on where you think AI will go. Zitron is obviously skeptical and calls the AI 2027 article "a truly offensive piece of fan fiction." That article starts: >We predict that the impact of superhuman AI over the next decade will be enormous, exceeding that of the Industrial Revolution. And if that happens investing a lot will make sense. If not I guess OpenAI will have to scale back and drop much of its free service. Or maybe go bust. I'm not sure it's as doom and gloom as Zitron makes out. Maybe a bit of an over allocation of capital to OpenAI and LLMs but things will go on. Even if OpenAI folds Google and others will probably do fine. (HN on AI 2027 - generally skeptical - https://news.ycombinator.com/item?id=43571851 https://news.ycombinator.com/item?id=43571851) I figure the reality is somewhere between Zitron's skepticism and AI 2027's over optimism.
- tdesilva 2y agoAs with many startups (especially ones with high burn rates) OpenAI is risky. It could take down SoftBank and its data center vendors. 6% of nvidia’s revenue is not that concerning, as I’m sure they can find other buyers for those GPUs. But I really don’t buy the argument that OpenAI is the gen AI industry. If they ceased to exist tomorrow, the tech/genAI industry would just trundle along. At this point the tech is quite commodotize.