ChatGPT is a cash-burning machine: Will OpenAI go bankrupt?

OpenAI, the world’s leading AI studio, finds itself on the precipice of financial turmoil in sustaining the cost of ChatGPT’s free version for its users. According to Analytics India Magazine, OpenAI has to spend over $700,000 per day to keep the generative AI running for free. 

The report even suggested that Sam Altman-led OpenAI may also be inching towards bankruptcy due to the soaring cost associated with maintaining its AI chatbot. Despite attempts to monetise its advanced models like GPT-3.5 and GPT-4, the company is struggling to generate sufficient revenue to offset its substantial expenses. This has raised concerns about the sustainability of OpenAI's financial health.

OpenAI's financial difficulties are exacerbated by the decline in its user base. While the introduction of ChatGPT initially attracted a record-breaking number of users, recent data reveals a significant downturn. According to Similarweb, in July 2023, the user base witnessed a decrease of 12 per cent compared to the previous month, dropping from 1.7 billion users to 1.5 billion users. 

However, it's important to note that this data only accounts for users visiting the ChatGPT website and doesn't include those utilising OpenAI's APIs.

Free-to-use LLMs gaining popularity

Adding to OpenAI's challenges, the popularity of the open-source Large Language Model (LLM) presents formidable competition. These freely available models can be customised and tailored to specific use cases without any licensing restrictions, raising questions about the value proposition of OpenAI's paid and proprietary offering, particularly in comparison to adaptable alternatives like LLaMA 2.

ChatGPT is used by 100 million+ users | Image credit: Unsplash 

The conflict between OpenAI's drive towards profitability and Sam Altman's public statements advocating for AI regulation has also come to the fore. Despite the financial challenges, Altman's concern for the unregulated development of AI remains consistent. He has been open about his worries regarding AI's potential negative impact on employment and society.

OpenAI’s increasing losses 

Starting as a non-profit company in 2015 by Sam Altman, Elon Musk, and Reid Hoffman, OpenAI formed a for-profit subsidiary of the organisation in 2020 after failing to raise $1 billion in donations. The aim of the for-profit subsidiary is described as “issuing equity to raise capital and hire world-class talent, but still at the direction of the nonprofit,” on OpenAI’s official website.

OpenAI started as a nonprofit company in 2015 | Image credit: Unsplash

However, OpenAI's quest for profitability has not yet yielded the desired results. Despite receiving a significant investment of $10 billion from Microsoft and other venture capital firms, the company has incurred losses amounting to $540 million since ChatGPT's launch.

Amidst the constantly increasing cost of operation, OpenAI’s revenue projection for 2023 and 2024 looks overambitious. The attempts to monetise ChatGPT 4 do not seem to have yielded desired results as OpenAI’s consolidated revenue is not adequate to make it profitable. 

OpenAI's situation is further complicated by ongoing shortages of enterprise-level GPUs, essential for training advanced AI models. The scarcity of these resources has hindered the company's ability to enhance and train new models effectively, impacting the quality of its flagship product, ChatGPT.

Will OpenAI go bankrupt?

Amid these pressing financial challenges, the high cost of operation, and the declining user base, OpenAI is bound to work effectively on its recurring revenue to continue its operation. OpenAI is also facing an API cannibalisation crisis in which commercial players are not permitting the use of ChatGPT for their employees while using ChatGPT’s API to create their own personalised LLMs.

ChatGPT answers more than 10 million queries in a day | Image credit: Pexels

The urgency to pivot towards profitability is palpable, as the AI studio navigates through a complex landscape in pursuit of financial stability. The outcome remains uncertain, but OpenAI's future hinges on its ability to address these pressing issues promptly.