OpenAI Might Go Bankrupt ？
When OpenAI applied for a trademark on 'GPT', we predicted that it could mark the downfall of the company, leading to a decrease in usage of its GPT products. While OpenAI did not win the trademark, there is evidence indicating that many people are indeed shifting away from using GPT.
Initially, the decline in users on the ChatGPT website in June was attributed to students being out of school. However, another reason could be that users started building their own bots after the release of the ChatGPT API, rather than relying on the original offering.
By the end of July, the user base of ChatGPT had dropped further. According to SimilarWeb, there was a 12% decline in users from June to July, from 1.7 billion to 1.5 billion, although this figure does not include API usage.
One possible reason for this decline, as mentioned by a user on X, is API cannibalization. Companies are prohibiting employees from using ChatGPT for work but allowing them to utilize the API to leverage large language models (LLMs) in various workflows.
However, it is presumptuous of OpenAI to assume that the user decline is solely due to people using the API to build their own products. The rise of open-source LLM models, such as Meta's Llama 2 in partnership with Microsoft, offers an easily modifiable alternative to OpenAI's paid and proprietary version. In certain use cases, Llama 2 is even considered superior to GPT. Startups are demonstrating a migration from proprietary models to Llama 2.
It's worth noting that although CEO Sam Altman does not hold equity in OpenAI, the company transitioned from a non-profit to a profit-seeking entity. OpenAI, however, is not yet profitable, with losses reaching $540 million since developing ChatGPT.
Given OpenAI's profitability status, it is too early for the company, along with other AI leaders like Anthropic and Inflection, to enter the initial public offering (IPO) market. A successful IPO often requires at least 10 years of operation and $100 million in revenue, according to Investopedia.
At present, Microsoft's $10 billion investment is likely keeping OpenAI afloat. OpenAI projects annual revenues of $200 million in 2023 and aims to reach $1 billion in 2024, but these targets seem challenging given the mounting losses.
While OpenAI's switch to a paid version may have generated revenue, the financial details of its API sales and usage of GPT-4 and DALL-E2 remain unclear.
If OpenAI were to pursue an IPO focused on LLMs, it might attract acquisition offers from larger companies, possibly serving as an exit strategy for investors. However, nothing is definitive in this regard. Despite some employees departing for rival companies, OpenAI continues to hire new talent and expand its offices, including establishing a presence in London.
Altman acknowledged that running the AI company and ChatGPT was costly before monetizing it. It is reported that ChatGPT incurs a daily cost of $700,000 to operate, with Microsoft and recent investors shouldering the burden. However, if profitability is not achieved promptly, it may strain their resources.
Previously, Google or Meta were considered OpenAI's major competitors in the AI race. However, Elon Musk's xAI has emerged as a significant rival, diverting attention from the previous contenders. Musk's concept of "TruthGPT," a less politically biased chatbot, has garnered interest. Musk even purchased 10,000 NVIDIA GPUs to gain an advantage.
Additionally, OpenAI faces challenges posed by the GPU shortage. Altman stated that the lack of available GPUs hinders the company from training and improving their models. OpenAI's application for a trademark on 'GPT-5' indicates their intention to train it, but the quality of ChatGPT output has suffered.
If OpenAI does not secure additional funding soon, the company may need to file for bankruptcy by the end of 2024 to acquire new NVIDIA GPUs arriving in the second quarter of that year and resume model training. In the meantime, competition intensifies, losses accumulate, user numbers decline, lawsuits increase, and overall quality deteriorates. OpenAI's future appears challenging.