ChatGPT In Trouble: OpenAI may go bankrupt by 2024, AI bot costs company $700,000 every day
OpenAI spends about $700,000 a day, just to keep ChatGPT going. The cost does not include other AI products like GPT-4 and DALL-E2. Right now, it is pulling through only because of Microsoft's $10 billion funding
OpenAI, the AI studio that practically started the conversation around AI among regular, non-technical folks, may be in massive trouble. In its bid to become the face of generative AI through their AI chatbot ChatGPT, Sam Altman’s AI development studio has put itself in a position, where it might have to soon declare bankruptcy, as per a report by Analytics India Magazine.
When OpenAI applied for a trademark on ‘GPT’, it was seen as the start of OpenAI’s downfall, with many believing that people would eventually abandon the technology. Although the trademark was never secured, there is clear evidence that numerous individuals are indeed moving away from OpenAI’s GPT products.
Initially, when the usage of the ChatGPT website declined from May to June, it was attributed to students being on summer break or the introduction of the ChatGPT API, which led users to create their own bots instead of using the original service.
Userbase in decline
By the end of July, the user base of ChatGPT had further decreased. According to SimilarWeb, July saw a 12 per cent decline in users compared to June, dropping from 1.7 billion users to 1.5 billion users. However, this statistic doesn’t encompass API usage, where most of OpenAI’s revenue is coming from
A significant factor in this decline could be API cannibalization. Many companies were discouraging their employees from directly using ChatGPT but allowing them to employ the API to integrate the large language model (LLM) into various workflows.
OpenAI’s assumption that the user decline is solely due to API usage for building personalized products seems presumptuous. Open-source LLM models that are free to use and repurpose are playing a more significant role.
For example, Meta’s LLaMA 2, in partnership with Microsoft, permits commercial use of the LLM. In such a case, why would someone 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?
Conflict between Sam Altman and OpenAI
Moreover, the shift from non-profit to profit-oriented, along with CEO Sam Altman’s lack of equity ownership, indicates OpenAI’s interest in profitability. Although Altman might not prioritize profits, the company does. Despite this, OpenAI hasn’t achieved profitability; its losses reached $540 million since the development of ChatGPT.
Considering OpenAI’s profitability within the context of a recent Investopedia report, it’s premature for leading AI companies like OpenAI, Anthropic, or Inflection to consider initial public offerings (IPOs). The report suggests that successful IPOs typically require at least 10 years of operation and $100 million in revenue.
Microsoft’s $10 billion investment has kept OpenAI afloat and going for now. However, 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, says the report by Analytics India Magazine.
While transitioning to a paid model may have generated revenue, OpenAI’s financial outlook remains unclear. Potential revenue may come from API purchases and usage of offerings like GPT-4-based chatbots or DALL-E2, but their financial details are unclear.
ChatGPT costs OpenAI $700,000
Should OpenAI pursue an IPO, it might attract acquisition interest from larger firms, serving as an exit strategy for investors. Employee turnover may be occurring as some staff join competitors, but OpenAI is still actively hiring and expanding its offices, notably in London, as indicated by recent reports.
In December, Altman acknowledged that the cost of running the AI company and ChatGPT was substantial and chose to monetize it. According to reports, operating ChatGPT costs OpenAI about $700,000, daily. These expenses are currently being covered by Microsoft and other recent investors, which could strain their resources if OpenAI doesn’t become profitable soon.
Previously, the prevailing notion was that major contenders like Google or Meta would be OpenAI’s primary rivals in the AI race. However, a significant shift has occurred with Musk’s xAI entering the scene. Musk is highly motivated to challenge OpenAI and construct a competing chatbot. Notably, his concept of creating a “TruthGPT,” one that avoids the political bias seen in ChatGPT, has garnered considerable interest. Musk has even procured 10,000 NVIDIA GPUs to bolster his efforts, as Firstpost reported earlier.
Enterprise-level GPU shortages continue to haunt OpenAI
Complicating matters further is the ongoing shortage of GPUs. 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 trademark on ‘GPT-5’ indicates their intention to continue training models. However, this pursuit has led to a notable drop in ChatGPT’s output quality.
Considering these circumstances, unless OpenAI secures additional funding promptly, the company might find itself in a position where filing for bankruptcy by the end of 2024 becomes a necessity.
This step would potentially enable them to obtain the NVIDIA GPUs scheduled to arrive in the second quarter of that year, allowing them to resume model training. In the interim, challenges are mounting, financial losses are growing, user numbers are declining, legal disputes are accumulating, and the quality of outputs is diminishing as well. OpenAI faces a daunting path ahead.