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And friendster at one point had over 100m users. A gross margin (and more importantly, positive cash flow) business is more important than users. This data is n

by mgh95 1y ago

And friendster at one point had over 100m users. A gross margin (and more importantly, positive cash flow) business is more important than users. This data is not a good indicator of either.

bix6 1y ago
But if they slap on ads their margin improves so it is possible no?
- mgh95 1y ago
  Yeah but the problem then becomes you are in a knife fight with google. Welcome to margin compression on already thin margins and high capex. Its not a like they buy commodity hardware that is cheap, or have the depth of talent like Google to do ASICs + DC management. Once OpenAI turns to ads, I think it's an indicator they are out of ideas.
  - babelfish 1y ago
    You could have said this about Meta 15 years ago, and now they're a ~$2 trillion dollar company!
    - haijo2 1y ago
      Meta (FB, IG, WA) and Google Search arent really comparable... OAI and Google def are though.
      - MangoToupe 1y ago
        Google has a monopoly on search (maybe not as seen by courts, but certainly practically). OpenAI is in a commodity brawl with dozens of companies. Still, if anything saves their ass it's that "chatgpt" is synonymous with "chatbot".
- euLh7SM5HDFY 1y ago
  Yes, but only if the users can't move to competition. Just look at YouTube, there were relatively few ads until all other video sites were dead.
famouswaffles 1y ago
They have literally hundreds of millions of users that are completely free. Not google search or facebook free, but free free, and only suffer a few billion in losses. Inference is cheap and their unit economics is fine. There is literally no business that would be making profit under those constraints. If they need to make profit, they can implement ads and that will be that.
- mgh95 1y ago
  In 2024 (when customer mix was more favorable) they lost 5B on 10 in forward looking ARR. They aren't pulling an Amazon snd balancing cash flow with costs. They're just incinerating money for a low value userbase. Even at FB arpu the economics are still very poor.
  - famouswaffles 1y ago
    >In 2024 (when customer mix was more favorable) Okay, so still hundreds of millions of users >They aren't pulling an Amazon snd balancing cash flow with costs. Nobody said they were. I said having hundreds of millions of completely free users would suck the profitability of any business, and that the remedy would be simple, should the need for it arise. >They're just incinerating money for a low value userbase. If you don't see how implementing ads in a system designed for having natural conversations to users whose most common queries are for “Practical Guidance” and “Seeking Information” could be incredibly valuable then you have no foresight and I don't know what to tell you. >Even at FB arpu the economics are still very poor. No they aren't and I honestly have no idea what you're talking about. Inference is cheap and has been for some time.
    - mgh95 1y ago
      I don't think you realize the issue. They aren't monetizing their SaaS product satisfactorily -- hence the Amazon cash flow imbalance statement. This indicates they must find new markets to survive. Despite this, however, they are gaining only in poorer markets, limiting the monetizability of a high cost product. Implementing adds is a hail-mary. It puts them in a knife fight with google which will likely result in a race to the bottom which OpenAI cannot sustain and win. FB global ARPU is about 50 USD. At 700M customers, they do 35B in revenue annually. This compares to a publicly stated expected cost of approximately 150B in computing alone over the next 5 years (see: https://fortune.com/2025/09/06/openai-spending-outlook-115-billion-through-2029-data-center-server-chips/ https://fortune.com/2025/09/06/openai-spending-outlook-115-b...). This leaves a profit of 5B per year, with 90B expected r&d costs. Even if OpenAI develops a product and fires all employees, you are looking at a ROIC of about 18 years. Fundamentally, OpenAI does not have the unit economics of a traditional SaaS. "Hundreds of millions of users" is hundreds of millions of people consuming expenses and not generating sufficient revenue to justify the line of business as a going concern. This, coupled with declining enterprise AI adoption (https://www.apolloacademy.com/ai-adoption-rate-trending-down-for-large-companies/ https://www.apolloacademy.com/ai-adoption-rate-trending-down...) paints an ugly picture.
standardUser 1y ago
No one ever paid for social media, or were expected to in the future.
- mgh95 1y ago
  Nobody expected the total computations from social media they expect from LLM services. And that's the point: users are irrelevant, even large enterprises with advantageous cost structures can die with poor management.

by mgh95 1y ago

And friendster at one point had over 100m users. A gross margin (and more importantly, positive cash flow) business is more important than users. This data is not a good indicator of either.

bix6 1y ago

But if they slap on ads their margin improves so it is possible no?

mgh95 1y ago
Yeah but the problem then becomes you are in a knife fight with google. Welcome to margin compression on already thin margins and high capex. Its not a like they buy commodity hardware that is cheap, or have the depth of talent like Google to do ASICs + DC management. Once OpenAI turns to ads, I think it's an indicator they are out of ideas.
- babelfish 1y ago
  You could have said this about Meta 15 years ago, and now they're a ~$2 trillion dollar company!
  - haijo2 1y ago
    Meta (FB, IG, WA) and Google Search arent really comparable... OAI and Google def are though.
    - MangoToupe 1y ago
      Google has a monopoly on search (maybe not as seen by courts, but certainly practically). OpenAI is in a commodity brawl with dozens of companies. Still, if anything saves their ass it's that "chatgpt" is synonymous with "chatbot".
euLh7SM5HDFY 1y ago
Yes, but only if the users can't move to competition. Just look at YouTube, there were relatively few ads until all other video sites were dead.

famouswaffles 1y ago

They have literally hundreds of millions of users that are completely free. Not google search or facebook free, but free free, and only suffer a few billion in losses. Inference is cheap and their unit economics is fine. There is literally no business that would be making profit under those constraints. If they need to make profit, they can implement ads and that will be that.

mgh95 1y ago
In 2024 (when customer mix was more favorable) they lost 5B on 10 in forward looking ARR. They aren't pulling an Amazon snd balancing cash flow with costs. They're just incinerating money for a low value userbase. Even at FB arpu the economics are still very poor.
- famouswaffles 1y ago
  >In 2024 (when customer mix was more favorable) Okay, so still hundreds of millions of users >They aren't pulling an Amazon snd balancing cash flow with costs. Nobody said they were. I said having hundreds of millions of completely free users would suck the profitability of any business, and that the remedy would be simple, should the need for it arise. >They're just incinerating money for a low value userbase. If you don't see how implementing ads in a system designed for having natural conversations to users whose most common queries are for “Practical Guidance” and “Seeking Information” could be incredibly valuable then you have no foresight and I don't know what to tell you. >Even at FB arpu the economics are still very poor. No they aren't and I honestly have no idea what you're talking about. Inference is cheap and has been for some time.
  - mgh95 1y ago
    I don't think you realize the issue. They aren't monetizing their SaaS product satisfactorily -- hence the Amazon cash flow imbalance statement. This indicates they must find new markets to survive. Despite this, however, they are gaining only in poorer markets, limiting the monetizability of a high cost product. Implementing adds is a hail-mary. It puts them in a knife fight with google which will likely result in a race to the bottom which OpenAI cannot sustain and win. FB global ARPU is about 50 USD. At 700M customers, they do 35B in revenue annually. This compares to a publicly stated expected cost of approximately 150B in computing alone over the next 5 years (see: https://fortune.com/2025/09/06/openai-spending-outlook-115-billion-through-2029-data-center-server-chips/ https://fortune.com/2025/09/06/openai-spending-outlook-115-b...). This leaves a profit of 5B per year, with 90B expected r&d costs. Even if OpenAI develops a product and fires all employees, you are looking at a ROIC of about 18 years. Fundamentally, OpenAI does not have the unit economics of a traditional SaaS. "Hundreds of millions of users" is hundreds of millions of people consuming expenses and not generating sufficient revenue to justify the line of business as a going concern. This, coupled with declining enterprise AI adoption (https://www.apolloacademy.com/ai-adoption-rate-trending-down-for-large-companies/ https://www.apolloacademy.com/ai-adoption-rate-trending-down...) paints an ugly picture.

standardUser 1y ago

No one ever paid for social media, or were expected to in the future.

mgh95 1y ago
Nobody expected the total computations from social media they expect from LLM services. And that's the point: users are irrelevant, even large enterprises with advantageous cost structures can die with poor management.