OpenAI, the AI studio that practically started the conversation around AI among regular, non-technical folks, maybe in massive trouble.
In its bid to become the face of generative AI through its AI chatbot ChatGPT, Sam Altman’s AI development studio has put itself in a position where it might have to declare bankruptcy soon, as per a report by Analytics India Magazine.
It costs OpenAI about $700,000 daily to run just one of its AI services – ChatGPT. As a result, Sam Altman’s OpenAI is currently burning through cash. Furthermore, despite their attempt to monetize GPT-3.5 and GPT-4, OpenAI is not generating enough revenue to break even. This is leading to an alarming situation.
The user base is in decline
While OpenAI and ChatGPT opened up to a wild start and had a record-breaking number of sign-ups in its initial days, it has steadily seen its user base decline over the last few months. According to SimilarWeb, July 2023 saw its user base drop by 12 percent compared to June – from 1.7 billion to 1.5 billion users. Do note that this data only shows users who visited the ChatGPT website and does not account for users who are using OpenAI’s APIs
OpenAI’s APIs are also a part of the problem. Many companies initially discouraging their employees from using ChatGPT are now buying access to OpenAI’s APIs and creating their own AI chatbots in various workflows.
The problem, however, as Analytics India Magazine notes, is that several open-source LLM modelsare free to use and can be repurposed without any licensing issues. As a result, they can be suitably customized and adapted to particular use case scenarios that an organization might have.
In such a case, why would someone choose OpenAI’s paid, proprietary, and restricted version, over the more adaptable and free-to-use LLaMA 2, especially given its potential superiority in specific scenarios?
The conflict between Sam Altman and OpenAI
OpenAI’s shift towards profitability, combined with Sam Altman’s recent public statements, indicates several things. Although Altman might not prioritize profits, OpenAI does. While OpenAI is routinely pumping more money to make their GPT LLMs more powerful and clever, Sam Altman has made several public statements that say that AI, if unregulated by the government, will be disastrous.
Altman has been very vocal about the need for guidelines on developing AI. There have been numerous instances where Altman has predicted that AI will take away millions of jobs in its current form.
Some tech experts would even go as far as to say that Altman is having a Frankenstein moment, where he is somewhat regretful of the monster he has created, although it seems that would be a farfetched reading of the situation.
Despite this, OpenAI has been looking for new and better ways to monetize its GPT-4 LLMs. However, it hasn’t achieved profitability. Its losses reached $540 million since the development of ChatGPT.
Microsoft’s $10 billion investment and some other venture capital firms have kept OpenAI afloat and going for now. However, as Analytics India Magazine reports, OpenAI’s projection of reaching $200 million in annual revenue in 2023 and aiming for $1 billion in 2024 seems ambitious, given its mounting losses.
Staffing Issues
If OpenAI goes for an IPO, it might be acquired by a large tech company or a conglomerate. This would serve as a great exit strategy for its current investors. However, some issues may cause a hindrance in an IPO, which in turn may not bring that big a value.
OpenAI is currently going through a period of high attraction rates. They are not laying off people like the rest of the tech industry. However, they are bleeding employees, or rather some top talent, as their staff keeps getting poached by their competitors.
ChatGPT costs OpenAI $700,000
In December 2022, just months after launch, Altman acknowledged that the cost of running the AI company and ChatGPT was eye-wateringly high, and therefore, the company chose to monetize it. According to reports, operating ChatGPT costs OpenAI about $700,000 daily. Microsoft and other recent investors are currently covering these expenses. However, the recurring cost and OpenAI’s inability to generate ample revenue quickly will create a problematic situation if OpenAI can’t turn things around.
While companies like Google or Meta are often considered OpenAI’s primary rivals, people often forget about Musk and xAI. Musk has been involved with AI for a long time, mainly because of Tesla. However, since ChatGPT went as viral as it did, Musk has been making significant moves in AI. To begin with, he openly announced that he would be making a competing chatbot called “TruthGPT,” which wouldn’t be as biased or hallucination-prone as OpenAI’s ChatGPT. Furthermore, Firstpost had earlier reported that Musk had bought over 10,000 NVIDIA GPUs for his AI project at $10,000 a piece, which meant he had spent over $10 million on GPUs alone. Add to that the cost of workforce and running those data centers to train xAI’s algorithms.
Enterprise-level GPU shortages continue to haunt AI companies
Complicating matters further is the ongoing shortage of enterprise-level GPUs. Because of the US-China Tech war, AI and internet companies in China are buying out all enterprise-level GPUs through intermediaries. Some of them have even managed to work directly with central AI Chip making companies.
A recent SCMP report revealed that various Chinese tech companies have placed orders with NVIDIA for their A800 and A100 AI-Chips totaling a staggering $5 billion, which will be delivered by 2024.
Altman mentioned that the scarcity of GPUs in the market is hindering the company’s ability to enhance and train new models. OpenAI’s recent filing for a ‘GPT-5 trademark indicates their intention to continue training models. However, this pursuit has led to a notable drop in ChatGPT’s output quality.
All of this together– growing financial losses, declining userbase, the inability to generate consistent and meaningful revenue, and diminishing quality of their star product– means a straightforward thing. OpenAI is in a world of trouble, and needs to find a way to profitability quickly.
