Why OpenAI is Not Profitable Yet?

Asking OpenAI's profit is like trying to teach a cat to bark - it's just not going to happen.
Why OpenAI is Not Profitable Yet?
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One might imagine, since OpenAI has been in the news so much since last year, it must be mining money like crazy with a rising user base. While it might be true that Sam Altman might be sitting on top of a cash pile, most of that is just because he has been rich by investing in startups with Y Combinators, does not care about money, and the billions of dollars that Microsoft has poured into the startup. Because in reality, the company is going through a loss. 

According to a report from the Information, OpenAI’s losses have doubled to $540 million since it started developing ChatGPT and similar products. Yes! The product that is being embraced by the world is making the tech-giant like Google dance, but is falling behind profitability. 

It’s a conundrum. Since the company started offering their services through APIs and products, more people and companies started adopting and integrating them in their offerings. It might feel like this would generate profit.

However, there is a flip side to it. As the demand for the generative AI products by OpenAI increases among enterprises, the company has to keep developing better products, and that requires a lot of compute, and the company has to invest it in that. Balance is the key here. 

But for now, according to the same report, though the revenues are picking up, the pace of spending hundreds of millions of dollars to build better products and the infrastructure to support them, is also picking up. 

Reflecting on this draining capital, Altman has privately suggested that he wants to raise as much as $100 billion in the coming years. This big amount might be to keep up with the going on losses, but Altman said that this is just to achieve the long dream of the company of artificial general intelligence. Many experts, however, believe that this goal is never going to happen, especially with auto-regressive LLMs. 

Basically, Altman and his OpenAI wants to establish a monopoly on AI. The plans are already evident. After buying the domain AI.com, and redirecting it to ChatGPT, OpenAI has now also filed for a trademark on ‘GPT’. We called this – the beginning of the end of OpenAI

All In the Name of OpenAI

But what about the fact that so many VCs and investors are pouring money into generative AI startups these days amid the OpenAI’s ChatGPT buzz? If a company like OpenAI, leading the AI race is still not profitable, how come smaller companies with smaller funds develop AI models and become profitable? 

Yann LeCun in his Tweet probably answered this. He said, “Every economist I know says that it takes 15-20 years before a general purpose technology has a measurable effect on productivity.” Same is the case for return of investments in tech startups. 

Speaking to several VCs who are investing in tech startups in India, we found that a lot of them realise that the companies are not going to be profitable immediately, i.e. even four to five years. “We don’t want to exit quickly, we are here for the long haul,” said Arjun Rao from Speciale Invest. Maybe the investors know what they are doing. 

But a question arises, amid all the talks about regulating AI with the US President meeting the top tech giants at the White House for controlling the effects of AI, would the VCs want to pour funds into startups that are also forced to regulate their AI? There is no doubt that VCs are in it for the money mostly. And funding AI startups, whose technologies are at the brisk of a lot of regulations, might be something they should be ready to fund as well.

OpenAI has Microsoft for that. But maybe the partnership is not feeling that well for the company at the moment. Recently, OpenAI announced that it is planning to release ChatGPT Business for companies to leverage their technology into their systems. Though the company was offering its API all this while, and Microsoft was using it to provide the AI technology to its customers, OpenAI’s move to offer its product directly to enterprises seems like a sly move from the company, circumventing Microsoft. Or maybe not, we will know more when it happens. Read: Why ChatGPT Business Might Fail?

Meanwhile, micromanager Altman also recently said that working from the office is a better model since people can collaborate and make better products. One might wonder what is going on at OpenAI’s office, or this might be another move to make sure there are no losses since the company has spent a lot of dollars for roping in researchers from competitors like Google DeepMind

While OpenAI is going through losses, Microsoft reported a profit increase of 9%. There is probably no doubt that the losses for OpenAI might continue for a while, maybe the company doesn’t really care about profits at the moment. For now, OpenAI’s profits are just like ChatGPT – hallucinating!

OpenAI’s current losses also prove that VCs are investing in generative AI for the long haul. There is no doubt that they are blind to OpenAI’s success despite the losses. That is why they are pouring funds into these generative AI startups, waiting for when they actually generate money in the future and bear the losses for now.

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Mohit Pandey
Mohit dives deep into the AI world to bring out information in simple, explainable, and sometimes funny words. He also holds a keen interest in photography, filmmaking, and the gaming industry.

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