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Up until this post, I thought he was someone with good financial insight, analytical chops, and business sense, stuck with an audience that thinks it's still 20

Up until this post, I thought he was someone with good financial insight, analytical chops, and business sense, stuck with an audience that thinks it's still 2023 and ChatGPT 3 is still the pinnacle of the technology, and that he therefore has to pander to in order to pay the bills. After this supposedly being the reveal for his bubble-bursting massive revelation that will send the industry flying and lead to journalists kicking in his door for interview requests and exposés, I think... well, not that anymore. I thought "the frontier labs are losing money" was rather universally understood, and this really isn't even as bad as the stuff that's publicly visible; the fact that they keep raising hundreds of billions of dollars that they'll one day supposedly be required to show returns on?

disgruntledphd2 4mo ago
> After this supposedly being the reveal for his bubble-bursting massive revelation that will send the industry flying and lead to journalists kicking in his door for interview requests and exposés I mean, the fact that lots of expenses are not scaling with revenue (sales and marketing 5xed versus revenue 3xing) and that the losses are very very large is important. More importantly, these are audited figures which haven't been seen before.
- thepasch 4mo ago
  Right, but this still isn't exactly new information. I don't think anyone was assuming that the labs are close to being profitable or that the losses wouldn't be rather large. The way this was announced was as if it was going to be a bombshell, but it just confirms what everyone (including the investors) was assuming anyway. Now if he had concrete numbers about whether inference at API pricing is profitable, that'd be a different thing (and it's what that hype bit was heavily implying since it's something he constantly keeps harping on, and rightfully so), but as it stands, nothing about these numbers says anything about whether this fundamentally has a road to profitability. It just says that this is a super high-risk high-reward investment, which isn't new information.
- simianwords 4mo ago
  Part of the losses are because of valuation increase and the real operating losses are much lower. https://www.ft.com/content/e15b0d7e-ff6b-4f16-ba7a-4068feddb828 https://www.ft.com/content/e15b0d7e-ff6b-4f16-ba7a-4068feddb... this uses the same sources and answers more honestly and Ed Zitron doesn't touch on this. > As OpenAI’s worth rose, the increased value of those investor rights created a roughly $30bn charge, added the person. The charge is not expected to recur following the restructuring, they said. > Stripping out the charge and other non-cash expenses, such as stock-based compensation of staff and computing credits from Microsoft, OpenAI’s losses were $8bn, according to the person. Whom would you trust? FT or Ed Zitron?
  - disgruntledphd2 4mo ago
    As a long time FT subscriber, I'm happy you're using them as a source. The Zitron details were more useful to me though. And none of my points have anything to do with the once off losses. I'm observing that a bunch of costs appear to be scaling with revenue or above revenue, which does not bode well for future profitability. Also, as an aside, stripping out equity grants is really misleading for a private, high growth tech company.
    - simianwords 4mo ago
      The losses are scaling with revenue because increase in (expected) revenue increases valuation which increases compensation. Once expectation stabilises these losses won’t happen because the valuation will remain constant. A lot of people were paid really high equity grants simply because they started low. You can’t expect them to be paid the same amount each time. FT themselves point this out and who you believe is up to you.
      - disgruntledphd2 4mo ago
        > The losses are scaling with revenue because increase in (expected) revenue increases valuation which increases compensation. My original point around equity is that if you pay a substantial fraction of comp in this form, then leaving it out of expenses is pretty bizarre. Is it your contention that the equity grants are the cause of their increasing losses? I believe that this is probably not true at all, it's more likely to be S&M (salespeople scale as N not log(N) like engineering/product) particularly given that the product requires tuning for lots of companies (hence all the FDE hires). More generally, the training costs seem to be increasing which is bad for their future profitability.

disgruntledphd2 4mo ago

> After this supposedly being the reveal for his bubble-bursting massive revelation that will send the industry flying and lead to journalists kicking in his door for interview requests and exposés I mean, the fact that lots of expenses are not scaling with revenue (sales and marketing 5xed versus revenue 3xing) and that the losses are very very large is important. More importantly, these are audited figures which haven't been seen before.

thepasch 4mo ago
Right, but this still isn't exactly new information. I don't think anyone was assuming that the labs are close to being profitable or that the losses wouldn't be rather large. The way this was announced was as if it was going to be a bombshell, but it just confirms what everyone (including the investors) was assuming anyway. Now if he had concrete numbers about whether inference at API pricing is profitable, that'd be a different thing (and it's what that hype bit was heavily implying since it's something he constantly keeps harping on, and rightfully so), but as it stands, nothing about these numbers says anything about whether this fundamentally has a road to profitability. It just says that this is a super high-risk high-reward investment, which isn't new information.
simianwords 4mo ago
Part of the losses are because of valuation increase and the real operating losses are much lower. https://www.ft.com/content/e15b0d7e-ff6b-4f16-ba7a-4068feddb828 https://www.ft.com/content/e15b0d7e-ff6b-4f16-ba7a-4068feddb... this uses the same sources and answers more honestly and Ed Zitron doesn't touch on this. > As OpenAI’s worth rose, the increased value of those investor rights created a roughly $30bn charge, added the person. The charge is not expected to recur following the restructuring, they said. > Stripping out the charge and other non-cash expenses, such as stock-based compensation of staff and computing credits from Microsoft, OpenAI’s losses were $8bn, according to the person. Whom would you trust? FT or Ed Zitron?
- disgruntledphd2 4mo ago
  As a long time FT subscriber, I'm happy you're using them as a source. The Zitron details were more useful to me though. And none of my points have anything to do with the once off losses. I'm observing that a bunch of costs appear to be scaling with revenue or above revenue, which does not bode well for future profitability. Also, as an aside, stripping out equity grants is really misleading for a private, high growth tech company.
  - simianwords 4mo ago
    The losses are scaling with revenue because increase in (expected) revenue increases valuation which increases compensation. Once expectation stabilises these losses won’t happen because the valuation will remain constant. A lot of people were paid really high equity grants simply because they started low. You can’t expect them to be paid the same amount each time. FT themselves point this out and who you believe is up to you.
    - disgruntledphd2 4mo ago
      > The losses are scaling with revenue because increase in (expected) revenue increases valuation which increases compensation. My original point around equity is that if you pay a substantial fraction of comp in this form, then leaving it out of expenses is pretty bizarre. Is it your contention that the equity grants are the cause of their increasing losses? I believe that this is probably not true at all, it's more likely to be S&M (salespeople scale as N not log(N) like engineering/product) particularly given that the product requires tuning for lots of companies (hence all the FDE hires). More generally, the training costs seem to be increasing which is bad for their future profitability.