They're selling a commodity product in a Red Queen's Race. OpenAI, Anthropic, and whatever others get spun up while the gold rush is on are each building costly models at a vast cost to try to get a bit ahead of each other. The economics of this are ugly. The business of building massive LLMs looks more like air transport than the dot com gold rush in the '90s. There will probably be much useful stuff in the wreckage when it's all over, but I've not seen much to inspire confidence that the useful stuff will include profitable companies. This looks like it has all the makings of another WeWork, only this time with an epochal AI winter as the aftermath.
WOW. These figures put the OpenAI valuation in perspective.<p>OpenAI: $3.6B revenue - people paying $2.7B for personal subscription (growth rate of 285% per year) - rest is AI<p>This would mean the latest OpenAI valuation of $156B is a P/E of about 43. For a company growing 285% per year ... that actually doesn't sound horrible. In fact, that's pretty good.
A lot of people are claiming that OpenAI has no moat, but so far they are clearly the market leader, and "chatgpt" has become an everyday word for LLMs, similarly to how "google" became an everyday word for search 20 years ago.<p>Why is Google still printing money on Search 20 years later? Surely at this point the know-how to build a search engine at scale is out there. It is a 2-sided marketplace, first they captured people's habits, then advertiser dollars. It could be that in the end LLM usage will also be ad-driven, in which case this will be captured by OpenAI most likely, similar to the Google case.<p>Another case. Why is Outlook the market leader for corporate email, even though email protocols are open standards, and there is no shortage of open source alternatives, etc. The reason is bundling of course and various other IT considerations, such as trainig/certs/control/security. Imo we don't really know yet how the LLM space will play out, what will enable (or not) OpenAI to win beyond the first years.<p>Of course there _were_ cases when the moat wasn't there, or was quickly disappeared, eg. Netscape's business melted away as soon as Microsoft bundled Internet Explorer with Windows.<p>Personally I think OpenAI still has a good 10x growth ahead (eg. 100M paid users for ChatGPT at the $20/mo-ish pricepoint) if they just maintain the current lead on the rest of the pack, and probably the API income can similarly be scaled up. At the slow-moving Retail company I work at, all the execs have been talking about AI for the last 2 years, but we still don't have a single AI feature in production in any of our apps, so we're not yet contributing to OpenAI revenues. But we will soon, as will 1000s of other slow-moving BigCos.
"Futuresearch estimates that their API business actually has ~50% gross margins, and that most of the losses come from operating costs (R&D, etc) and their ChatGPT business, which gives basically unlimited usage for ~$20/month."<p>I would have assumed there's more profit in the subscriptions than the API. $20 is roughly 2 million output tokens a month through the API. Given the 50% margin they claim, each user would have to be generating 3-4 million output tokens a month for OpenAI to be at a loss. Is that likely? Seems like a lot of words to me.
Google's AdWords business is worth about 10X that of Open AI ($1.5T) and does $250B of revenue. P/S of about 6X. If everyone stops googling and starts talking to ChatGPT instead, and GPU costs continue to fall such that ad-supported ChatGPT becomes feasible, it's not unreasonable to assume that Open AI can grow revenues by 100X from here.<p>Which assumes that Google will stand still, instead of cannibalizing its own business model.
LLM subscriptions are such a scam. You’re paying up front $20 to use an LLM when you could just be paying fractions of a penny per use. Majority of users probably do not get their moneys worth by racking up $20 worth of tokens in a month.<p>I’d really like to see as “pay as you go” gateway for popular LLMs. As Bezos said: “your margin is my opportunity.”
I'm skeptical of this analysis simply because it doesn't appear to include any revenue from the Microsoft deal. Many corporate customers are using the Azure ChatGPT service rather than OpenAI's API directly. There has to be some accounting for that.
Hot take is that until we get level 5, we are in a similar place as automotive where humans are pretty bad at sustained supervision and are biologically lazy.<p>Employers will see too much delegation to flawed models - codebases will swell with ai-slop that eventually seizes the business. Skills will atrophy. Internal comms will be similarly impacted, with flooding of generic memos and strategy docs from people pretending to work dripping with that RLHF sheen.
See also related recent submissions:<p><i>The investors behind OpenAI's historic $6.6B funding round</i> <a href="https://news.ycombinator.com/item?id=41726370">https://news.ycombinator.com/item?id=41726370</a> - Today (2 comments)<p><i>OpenAI wants to build 5-gigawatt data centers, nobody could supply that power</i> <a href="https://news.ycombinator.com/item?id=41726970">https://news.ycombinator.com/item?id=41726970</a> - Today (3 comments)<p><i>Why OpenAI burns through billions</i> <a href="https://news.ycombinator.com/item?id=41729038">https://news.ycombinator.com/item?id=41729038</a> - Today (0 comments, informative article)<p><i>OpenAI's bankruptcy flames linger on as Apple wiggles out of $6.5B funding round</i> <a href="https://news.ycombinator.com/item?id=41726224">https://news.ycombinator.com/item?id=41726224</a> - Today (0 comments, informative article)<p><i>OpenAI is now valued at $157B</i> <a href="https://news.ycombinator.com/item?id=41727947">https://news.ycombinator.com/item?id=41727947</a> - Today (0 comments, informative article)
This kind of analysis misses the fact that they will find other ways to monetize. Given that almost every other major tech company makes billions from ads (not subscriptions or API usage), it seems reasonable to price this into their valuation.
Interesting splits. I, too, find that the bulk of the money I give OpenAI is for ChatGPT+, and the bulk of the money I give Anthropic is for Sonnet API access. This month I spent more with Anthropic actually. Although, to be fair, I’d <i>like</i> to give OpenAI money for gpto-preview API access, I just don’t have the option.<p>This is such an interesting new industry —- so many comments here about race to the bottom / commodification, and I tend to think that way too, but in practice, I’m very very often like “Meh, ChatGPT is bad at this, I’ll ask Claude”, or vice-versa. We may actually be entering a world where we have different personalities and strengths in very large frontier models. I don’t think it’s easy to confidently predict where all this goes.
>ChatGPT is by far the dominant prosumer product<p>Some people prefer to delude themselves in order to not admit this.<p>Just yesterday [1], I argued ChatGPT was a strong brand just to be downvoted to the bottom. Lol. Imagine being so blatantly wrong at something you are supposedly a specialist at.<p>Turns out it's <i>only</i> a 3BnUSD / year brand, two years after its inception. Also, who is "Claude"? [2].<p>In terms of tech, nothing even comes close to "GPT-4o mini" for the same price/performance.<p>OpenAI will continue to dominate the market for the next decade, at least.<p>1: <a href="https://news.ycombinator.com/item?id=41723208">https://news.ycombinator.com/item?id=41723208</a><p>2: <a href="https://trends.google.com/trends/explore?date=now%201-d&geo=CA&q=chatgpt,claude&hl=en" rel="nofollow">https://trends.google.com/trends/explore?date=now%201-d&geo=...</a>
If you assume that the costs of inference would continue to decrease while they would be able to get billion people hooked on 42 per dollar plan..<p>That’s $0.5 trillion revenue rate