ChatGPT’s huge running cost is threatening OpenAI’s future

OpenAI spends a staggering $700,000 every day to run ChatGPT, one of its flagship AI services.
Rizwan Choudhury
Sam Altman and Open AI

OpenAI, the artificial intelligence studio that popularised AI with its chatbot ChatGPT, is reportedly facing a financial crisis that could lead to its bankruptcy.

According to a report by Analytics India Magazine, OpenAI spends a staggering $700,000 every day to run ChatGPT, one of its flagship AI services. The chatbot, which uses a powerful language model called GPT, can generate realistic and engaging conversations on various topics.

However, despite its impressive capabilities, ChatGPT has failed to generate enough revenue for OpenAI to cover its costs. The AI studio has also tried to monetize its newer versions of GPT, such as GPT-3.5 and GPT-4, but with little success.

Declining user base

The report also reveals that OpenAI’s user base has been declining steadily over the last few months. According to SimilarWeb, the number of users who visited the ChatGPT website dropped by 12 percent in July 2023 compared to June – from 1.7 billion to 1.5 billion. This does not include the users who are using OpenAI’s APIs, which allow developers to access and integrate GPT into their own applications.

However, OpenAI’s APIs are also facing competition from several open-source language models that are free to use and modify, such as LLaMA 2. These models can be customized and adapted to specific use cases and scenarios, unlike OpenAI’s paid, proprietary, and restricted versions.

AI risks and ethical regulation

Sam Altman vs OpenAI The report also suggests that there is a conflict between Sam Altman, the co-founder and CEO of OpenAI, and the rest of the AI studio. While OpenAI is focused on making profits and developing more advanced versions of GPT, Altman has been vocal about the dangers and risks of AI, especially if it is not regulated by the government.

Altman has repeatedly warned that AI could take away millions of jobs and create social and ethical problems if it is not controlled and guided by human values. Some tech experts have even speculated that Altman is having a Frankenstein moment–one where he regrets creating a monster that he cannot tame.

Despite Altman’s concerns, OpenAI has been looking for new and better ways to monetize its GPT-4 language model, which is expected to be released soon. However, it has not achieved profitability yet. Its losses reached $540 million since the development of ChatGPT.

OpenAI’s future is uncertain at this point. The AI studio has received a $10 billion investment from Microsoft, along with some other venture capital firms, which has kept it afloat for now. However, as Analytics India Magazine reports, OpenAI’s projection of reaching $200 million in annual revenue in 2023 and aiming for $1 billion in 2024 seems unrealistic, given its mounting losses.

One possible option for OpenAI is to go for an IPO, which could attract a large tech company or a conglomerate to acquire it. This would be a good exit strategy for its current investors. However, there are some issues that may prevent an IPO from happening or reduce its value.

One of these issues is staffing. According to the report, OpenAI has been struggling to retain and recruit talent, as many of its employees have left or joined other AI companies or projects. This could affect the quality and innovation of its products and services.

OpenAI is currently going through a period of high attrition rates. They are not laying off people like the rest of the tech industry, per se. However, they are losing employees, or rather some top talent, as their staff keeps getting poached by their competitors.

Competition and supply chain issues

Another issue is competition. While companies like Google or Meta are often considered to be OpenAI’s primary rivals, people often forget about Musk and xAI. Musk has been involved with AI for a long time, mainly because of Tesla. However, since ChatGPT went viral, Musk has been making some major moves in the AI space. To begin with, he openly announced that he will be making a competing chatbot called “TruthGPT,” which wouldn’t be as biased or hallucination-prone as OpenAI’s ChatGPT.

Musk had bought over 10,000 NVIDIA GPUs for his AI project, at $10,000 a piece, which meant he has spent over $10 million on GPUs alone.

Another issue that has been bugging the AI industry is the supply chain. As AI models depend heavily on computing power, there has been an ongoing shortage of enterprise-level GPUs. Adding to the matter is the US-China Tech war, AI and internet companies in China are buying out all enterprise-level GPUs through intermediaries. Some of them, have even managed to work directly with major AI Chip making companies.

A recent SCMP report revealed that various Chinese tech companies have placed orders with NVIDIA for their A800 and A100 AI-Chips that total a staggering $5 billion, which are to be delivered by 2024.

Altman pointed out that the shortage of GPUs available in the market is impeding the company's progress in improving and training new models. OpenAI's recent application for a trademark on 'GPT-5' signals their commitment to ongoing model development. Nevertheless, this has resulted in a noticeable decline in the output quality of ChatGPT.

The added woes of these factors - escalating financial setbacks, dwindling user numbers, challenges in sustaining steady and substantial earnings, and diminishing quality of their flagship product - signifies a straightforward reality: OpenAI finds itself in a precarious situation and must swiftly devise a path to achieve profitability.

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