Stability AI is a sinking ship.The company’s business model is in crisis and  is trying to find ways to stay afloat in the market. 

The London-based AI startup, which gained popularity with its text-to-image generation model Stable Diffusion, is contemplating selling the company as its management is grappling with increasing investor pressure regarding its financial standing. 

Interestingly, the company approached Cohere and Jasper AI, but Cohere declined to engage in the talks.

Meanwhile, the investors want Stability AI founder Emad Mostaque to step down. Coincidentally, Stability AI’s website is showing an error 404 against Mostaque’s name. The relationship between Stability AI and its investors has soured recently as the company is struggling to generate substantial revenue while offering its models for free to customers. 

One of its key investors, Coatue, has claimed that Mostaque’s poor leadership led to the departure of several top employees, placing the startup in a challenging financial position. Representatives from both Coatue and Lightspeed have already stepped down from Stability’s board, expressing disagreements with Mostaque’s management style. 

Apparently, Stability AI recently receiving a $50 million investment from Intel didn’t sit well with Coatue, as it has a stake in Intel’s rival, AMD

Competition Galore

Stability AI is finding it difficult to acquire customers as big tech giants have entered the foray with  their own image generation models. 

Meta has Emu Edit and Video, Google has Imagen, and recently, Amazon also launched its own image generation model- Titan Image Generator, now in preview and available for AWS customers on Bedrock.

To make matters worse, Dall-E-3 on ChatGPT Plus acted as the final nail in the coffin. ChatGPT today has more than 100 million weekly users. 

Moreover, Midjourney, a direct competitor to Stable Diffusion, has over 16.4 million active users as of November. On the other hand, Stable Diffusion has more than 10 million daily active users across all channels, according to Mostaque. 

It is fascinating that, although Midjourney has been following a subscription model from very early on, it has still been able to retain customers. Midjourney’s monthly subscriptions start from $10 and go up to $120.

Can Stability AI  turn it around

As of now, Stability AI offers Stable LM, Stable Audio, and Stable Diffusion XL. The company recently introduced Stable Video, a new free AI research tool that can turn any still image into a short video. Majority of the above models are free to use.

However, Mostaque has recently expressed his intentions to introduce Stability AI Memberships. He believes that in today’s market any AI startup needs to have a business model; otherwise, survival in the market won’t be easy. 

“We are doing ok as a business and ramping up nicely” he posted on X. 

The company generated $1.2 million in revenue in August and was projected to reach $3 million this month from software and services, according to a post by Mostaque on X on Monday, which he later deleted.

To determine the ideal pricing for his new core Stable models, he ran a poll on X. Ironically, most users voted for $1, indicating that they want the models to be available for free. 

It appears that Stability AI has already implemented the subscription model on Stable diffusion XL. If you visit the website and attempt to create an image, it asks for a monthly price of $10.

Mostaque mentioned that there has been tension in the organisation lately regarding what to release versus withhold, how to compete on API and other products, including consumer-focused ones. 

“We want to release good models, and the line between open-source and releasing in the open, plus how to build a sustainable business, has been something we have spent a lot of time thinking about,” he added. 

Mostaque said that for commercial usage you will compulsorily need to have a Stability AI Membership.”For example, we’re considering, for an indie developer, this fee to be $100 a month, but only if you make above a certain amount of revenue, similar to game engines,” he said.

“It’s like Amazon Prime or Netflix for generative AI models,” he added. However, he continued that for non-commercial and academic usage, they will continue to provide the models for free.

It’s commendable that Stability AI is making efforts to avoid the need for a sale. However, if the situation arises where selling becomes the best way out, the company should seriously consider approaching Apple.