How Does OpenAI Survive?

🌈 Abstract

The article discusses the sustainability and long-term viability of OpenAI, the prominent artificial intelligence company behind ChatGPT. It examines OpenAI's financial situation, including its high operating costs, the challenges of raising sufficient funding, and the lack of a clear path to profitability. The article also explores the company's relationship with Microsoft and the potential implications of that partnership.

🙋 Q&A

[01] The Microsoft (and Valuation) Problem

1. What are the key concerns regarding OpenAI's relationship with Microsoft?

• OpenAI has a complex and concerning relationship with Microsoft, which has invested heavily in the company and has certain rights to its intellectual property and technology.
• Microsoft's investment in OpenAI has been predominantly in the form of cloud computing credits rather than cash, effectively locking OpenAI into using Microsoft's Azure cloud platform.
• Microsoft has access to OpenAI's "pre-AGI" technology and research, allowing it to potentially compete with OpenAI's own products.
• The terms of the deals between OpenAI and Microsoft are not fully disclosed, raising questions about the extent of Microsoft's control and influence over OpenAI.

2. How has Microsoft's investment affected OpenAI's valuation?

• Microsoft's $10 billion investment in OpenAI likely increased the company's valuation, though the exact terms of the deal are unclear.
• The author suggests that a significant portion of Microsoft's investment was in the form of cloud computing credits, rather than cash, which raises questions about the true value of the investment.

[02] The Funding Problem

1. What are the key concerns regarding OpenAI's funding and financial sustainability?

• OpenAI is estimated to be burning through as much as $5 billion per year, with the majority of these costs going towards renting Microsoft's servers and training its language models.
• The author argues that OpenAI would need to raise more money than any startup has ever raised in history, potentially in perpetuity, to sustain its current operations and continue developing its technology.
• Comparisons are made to other high-profile startups, such as Uber and WeWork, which have also raised significant amounts of funding, but the author suggests that OpenAI's funding needs are even more extreme and unprecedented.

2. What are the challenges OpenAI would face in raising the necessary funding?

• The author suggests that OpenAI would need to raise at least $20 billion over the next two years to stay in the game, which would require it to regularly make up 5-10% of all startup funding.
• Raising such large amounts of funding would be extremely difficult, as OpenAI would need to access capital at a scale that the author believes has no historical precedent.
• The author also questions whether investors would be willing to provide OpenAI with the necessary funding, given the lack of a clear path to profitability and the company's complex relationship with Microsoft.

[03] The Revenue, Cost and Market-Fit Problem

1. What are the key concerns regarding OpenAI's revenue, costs, and market fit?

• The author argues that OpenAI's costs are unsustainable, with the company needing to either significantly reduce costs or find ways to dramatically increase revenue.
• However, the author suggests that OpenAI's technology, based on transformer-based language models, has limited functionality and may not be able to justify the massive investments required to develop and operate it.
• The author also raises concerns about the legal and ethical issues surrounding the training data used to develop OpenAI's models, which could lead to ongoing legal challenges and further increase the company's costs.

2. What are the challenges OpenAI faces in finding new use cases and functionality for its technology?

• The author suggests that OpenAI is inherently limited by the transformer-based architecture of its language models, which may only be able to achieve incremental improvements in speed and accuracy rather than significant breakthroughs in functionality.
• The author also questions whether OpenAI will be able to develop entirely new technologies, such as the "Strawberry" project mentioned in the article, which could potentially provide the company with a path to profitability.

[04] A Grim Situation

1. What is the overall assessment of OpenAI's long-term viability?

• The author concludes that OpenAI's current situation is "deeply unsustainable" and that the company will need to make dramatic changes to its business model, funding, and technology in order to survive.
• The author expresses skepticism that OpenAI will be able to raise the necessary funding, reduce its costs, or develop new technologies that would justify the massive investments required to sustain the company.
• The author acknowledges the possibility of being wrong but argues that the analysis presented is necessary given the scale of OpenAI's operations and the potential impact of its collapse on the broader generative AI industry.