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> The interesting thing, to me, is how speculative OpenAI's bet is. It doesn't really matter how speculative the AGI bet is, their consumer AI business by itse

by jsnell 1y ago

> The interesting thing, to me, is how speculative OpenAI's bet is. It doesn't really matter how speculative the AGI bet is, their consumer AI business by itself is basically guaranteed to drown them in money. The only reason they're making losses at the moment is because they're choosing not to monetize their free tier users with ads, presumably since they don't need to make a profit and can prioritize growth. But the moment they flip the advertising switch, their traffic will be both highly monetizable and ludicrously high margin.

KerrAvon 1y ago
Maybe, but: 1. People won’t ultimate go download ChatGPT.app or use a website — they’re going to be using the functionality through structured services in iOS and Android, and it’s necessarily going to be under control of the OS vendors for security/privacy reasons. This doesn’t mean Apple and Google own the LLMs — there will be consumer choice for antitrust reasons if nothing else — but the operating system has to be a conduit for access to your data, and also for unified user experience. Which means advertising will be limited. 2. Say it does go the way you think it will — what prevents a real non-profit, open source LLM from taking it away from the commercial players? There really is no moat (other than money, energy, data center space).
asadotzler 1y ago
Not really. The best math I've seen says OAI cannot break even with ads on free tiers without about 5X as many users. That's to break even, not to be wildly profitable as you seem to be suggesting. OAI will need more than ChatGPT, pro and "free" to be anything close to web search for ad revenue.
- jsnell 1y ago
  It'd be easier to address said "best math you've seen" if you could provide a link to that analysis... I hope it wasn't by Ed Zitron. But it seems pretty obvious that the math must be based on some incorrect assumptions. The unit inference costs of high quality LLMs are much lower than the unit costs of serving high quality web search queries. The LLM costs have also been decreasing rapidly -- 1000x in two years seems like a fair estimate -- while search engine costs haven't. (If anything they've been going up.) And web search is obviously a business that is very profitable with the ad model, despite those higher unit costs. > OAI will need more than ChatGPT, pro and "free" to be anything close to web search for ad revenue. I don't understand this part at all. Revenue is proportional to traffic and ad rates. Why would the ad rates be lower for chatbots? Or why would their traffic obviously be lower? This is also moving the goalposts. Search ad revenue is what, a $250B/year market. OpenAI doesn't anywhere near that much revenue to be fabulously profitable. A tenth of it would already be more than enough.
insane_dreamer 1y ago
> But the moment they flip the advertising switch, their traffic will be both highly monetizable and ludicrously high margin. I think most people will continue to use Google and its Gemini-generated summaries at the top.
- jsnell 1y ago
  Maybe, but it doesn't really matter either way. They already have half a billion MAUs. I'm pretty sure what I said is true already on that user base. It's not contingent on chatbots replacing search as a whole, all that's needed is their existing traffic having a decent proportion of monetizable queries (this seems basically certain) and for them to come up with ad formats that are effective without driving users away.

by jsnell 1y ago

KerrAvon 1y ago

Maybe, but: 1. People won’t ultimate go download ChatGPT.app or use a website — they’re going to be using the functionality through structured services in iOS and Android, and it’s necessarily going to be under control of the OS vendors for security/privacy reasons. This doesn’t mean Apple and Google own the LLMs — there will be consumer choice for antitrust reasons if nothing else — but the operating system has to be a conduit for access to your data, and also for unified user experience. Which means advertising will be limited. 2. Say it does go the way you think it will — what prevents a real non-profit, open source LLM from taking it away from the commercial players? There really is no moat (other than money, energy, data center space).

asadotzler 1y ago

Not really. The best math I've seen says OAI cannot break even with ads on free tiers without about 5X as many users. That's to break even, not to be wildly profitable as you seem to be suggesting. OAI will need more than ChatGPT, pro and "free" to be anything close to web search for ad revenue.

jsnell 1y ago
It'd be easier to address said "best math you've seen" if you could provide a link to that analysis... I hope it wasn't by Ed Zitron. But it seems pretty obvious that the math must be based on some incorrect assumptions. The unit inference costs of high quality LLMs are much lower than the unit costs of serving high quality web search queries. The LLM costs have also been decreasing rapidly -- 1000x in two years seems like a fair estimate -- while search engine costs haven't. (If anything they've been going up.) And web search is obviously a business that is very profitable with the ad model, despite those higher unit costs. > OAI will need more than ChatGPT, pro and "free" to be anything close to web search for ad revenue. I don't understand this part at all. Revenue is proportional to traffic and ad rates. Why would the ad rates be lower for chatbots? Or why would their traffic obviously be lower? This is also moving the goalposts. Search ad revenue is what, a $250B/year market. OpenAI doesn't anywhere near that much revenue to be fabulously profitable. A tenth of it would already be more than enough.

insane_dreamer 1y ago

> But the moment they flip the advertising switch, their traffic will be both highly monetizable and ludicrously high margin. I think most people will continue to use Google and its Gemini-generated summaries at the top.

jsnell 1y ago
Maybe, but it doesn't really matter either way. They already have half a billion MAUs. I'm pretty sure what I said is true already on that user base. It's not contingent on chatbots replacing search as a whole, all that's needed is their existing traffic having a decent proportion of monetizable queries (this seems basically certain) and for them to come up with ad formats that are effective without driving users away.