THE COST OF CHATGPT: Have you ever wondered how much ChatGPT
engineers make? Well, the answer is $925,000. And that’s not top earners or directors or executives.
That is straight up the median. The average joe at OpenAI is paid $300,000 in cash and $625,000 in
stock every single year. Forget making $300 a day using ChatGPT. You might as well make a million
dollars making ChatGPT. Of course, you would first have to become an experienced coder but it’s
clearly worth the investment. But, is it actually worth it for OpenAI, the parent of ChatGPT? I mean
just think about it. Even if OpenAI were to employ just a 1000 engineers, we’re talking about annual
payroll of a billion dollars. If they were to grow to the scale of Google for instance, we’d be
talking about nearly 200,000 employees or nearly $200 billion per year in payroll. Of course,
not all of them would be engineers, but you get the idea: it’s expensive as hell. And that’s
just half the puzzle. To develop something like ChatGPT, you not only need the smartest
human brains on the planet but you also need the smartest computers on the planet. 30,000 of them
to be precise. Each of these bad boys comes in at 10 to 15gs so we’re talking about $300 million at
the very least. And who knows how long they have until these GPUs become outdated. Not to mention
all of the servers, databases, and infrastructure required to support their massive operation.
Thankfully they have hundreds of millions of users paying the…wait a minute. It’s free. Yeah, I don’t
think you’d be surprised to hear that they lost approximately $540 million last year. And ChatGPT
didn’t even come out till December, so their losses this year are only gonna be exponentially
worse. Almost definitely gonna be in the billions. And with how early this technology is, you can bet
that losses will only get worse as OpenAI doubles, triples, quadruples down on their R&D. Of course,
if they’re able to climb this mountain, they literally have trillions waiting for them on
the otherside. But to get there, they’re first gonna have to spend hundreds of billions themself
which brings us into the question of the day: can OpenAI actually afford to see the finish line?
THEORETICAL REVENUE: Well,
to answer whether ChatGPT will actually be a viable endeavor, we’ll first have to take a look
at how ChatGPT plans on making money. They could of course run ads like Google and they may very
well do this at one point, but this doesn’t seem to be their main monetization strategy, atleast
not right now. It seems like they far prefer more direct avenues of revenue like pro subscriptions.
They currently offer a pro plan that costs $20/mo. It comes with better availability,
faster responses, and early access to new features. Honestly, this isn’t all that valuable
to the casual user right now but I think its safe to assume that the disparity between the free plan
and the pro plan will only grow with time making it much more appealing. If they’re eventually able
to get 200 or 300 million people to sign up for this, that would pull in $50 to $70 billion per
year which is phenomenal but that’s not where the real money is. The real money is with other
companies. You see, OpenAI sells API access to ChatGPT. This essentially means that you can make
requests to ChatGPT using code allowing you to integrate ChatGPT into any app or website you’re
building. The pricing for these requests are based on tokens. 1000 tokens is approximately 750 words.
For every 750 words worth of input, you have to pay them 3 cents and for every 750 words worth
of output, you have to pay them 6 cents. That’s if you want 8k worth of context. If you want 32k
worth of context, the prices double. That might sound cheap and it is if you’re making hundreds
or even thousands of requests. But, when you really start looking at large scale integration,
it becomes very expensive very quickly. Let’s take a real world example: Bing. Now, Microsoft is owns
about half of OpenAI so I’m sure they get highly subsidized pricing for Bing but let’s assume they
don’t just to illustrate how expensive ChatGPT really is. It’s estimated that for every 100,000
requests into GPT 4 with an 8K context window, the API costs $7,500. Bing gets over 900
million searches every single day which translates to $67.5 million. Over a year, we’re talking about
just under $25 billion and that’s just from Bing. Imagine if Google integrated GPT 4. Every day,
they get 8.5 billion searches, so they’d have to pay OpenAI over $600 million every day or
$230 billion every year. Of course, that would be unsustainable for Google and there’s no way
they’ll be paying those prices. But I think you can see how big companies could easily end up
paying billions if not tens of billions to OpenAI every single year for large scale integration.
If you get a few hundred of these big boys on your side like Oracle or AWS or SAP have, you’d
be pulling in hundreds of billions per year and eventually trillions. So, theoretically speaking,
not only does OpenAI has a viable business model but a super lucrative one. There’s just one teensy
tiny problem though, getting these companies on board is not only hard but extremely expensive.
VERY REAL COSTS: For one, many of the biggest companies
in the world will try to directly compete with ChatGPT. Google is already doing it with Bard and
even Meta is trying to create their own language model. So, you can bet that these companies wont
be adopting OpenAI’s solutions anytime soon. Fortunately, there are still plenty of large
companies out there that aren’t creating their own language model but could very much benefit
from one. Likely the best example is Apple. In the most recent WWDC, they didn’t even mention
the term AI much less an AI language model. Now, they could very well be working on a model behind
the scenes for Siri but I think they’re taking a different approach. Just a few weeks ago, Tim
Cook said that he likes ChatGPT and that he uses it personally. But, just a few weeks before that
Apple actually banned ChatGPT internally. You’re probably wondering why Apple is sending these
mixed signals. Well, they’re basically saying: we like ChatGPT and may even be willing to integrate
it but only for the right price. And when I say the right price, I don’t mean cheap or even free
calls to ChatGPT. I mean, ChatGPT pays Apple for them to use it. This probably makes no sense. Why
in the world would ChatGPT pay for Apple to use them? Well, the same reason that Google does. You
know how Siri and Safari automatically redirect you to Google search? Well, this isn’t just
because Google is Tim’s preferred search engine or something. It’s because Google hands over Apple a
casual $20 billion per year. And that’s just to stay out of the search space. Imagine how much
Apple would want to stay out of the language model space. Safe to say, more than $20 billion per year
over the long term. Now OpenAI could just avoid doing business with companies like Apple. But,
you can bet that if OpenAI doesn’t make a deal with Apple, Google will. They already have a deal
with Apple and paying them an extra $20 or $30 billion every year to integrate Bard into Siri and
Safari is a no brainer. That’s literally makes Bard the default AI for over a billion people
basically overnight. If you monetize these users well, that’ll produce way more than the $20 or
$30 billion they pay Apple every year. But getting to that point takes time during which you’ll have
to continue paying Apple. Again, for Google, the trillion dollar giant, that’s no problem. But, for
OpenAI, we’re talking about their entire valuation being handed over to Apple every single year. And,
that’s just half the equation. You can bet that someone like Apple wont be willing to
deal with error messages like these. If they’re gonna push your product to their billion users,
they’re gonna first want assurance that you can handle that sort of load. Fortunately, we already
know how to handle these loads… it’s just really really expensive. Google regularly spends $30
billion just upgrading infrastructure. OpenAI would have to build it from scratch or rent it
from someone like Google or Amazon which will only be more expensive. So, not only will OpenAI have
to spend tens of billions on customer acquisition but they’ll also have to spend tens of billions on
supporting these customers and their insane scale. At that rate, Microsoft’s massive $10 billion
investment wouldn’t even last a couple months. I think you can start to see the problem.
ABSOLUTELY UNVIABLE:
Everything we’ve discussed so far is simply the cost to acquire and maintain customers. But with a
product like ChatGPT, R&D is even more important. All of these deals and partnerships only work if
you continuously have a market leading product. And let’s just say, the competition is by no means
holding back. I mean just think about this. Our boy Mark is willing to spend $100 billion on VR.
How much do you think he’s willing to spend on AI? Oh wait, we have an official number.
It's $33 billion this year alone. Again, that’s more than the entire market cap of OpenAI. Now,
just because you spend more money doesn’t mean you’ll come out ahead but then again,
it often does. The bottom line is that the AI game is simply being played on a different magnitude.
Traditional startups need hundreds of millions of dollars. OpenAI needs hundreds of billions of
dollars and that’s not my opinion. Sam Altman, the CEO of OpenAI himself has suggested that they’ll
need a $100 billion in the coming years itself. So, in the next decade or so, we’re looking at
$300 or $500 billion or some crazy number like that. And the obvious reality is that there is
absolutely no way that they’ll be able to afford these numbers by themselves anytime soon. I mean,
the company literally pulled in a whopping $28 million last year. This is expected to grow to
$40 billion by the end of this decade but in the context of a multi hundred billion investment,
that’s still not all that great. In fact, it may not even be enough to achieve profitability. So,
OpenAI is by no means a sustainable business by any stretch of the imagination. The only
way that OpenAI works is that you get a bunch of people to invest hundreds of billions maybe
even nearly a trillion dollars in the hopes of making tens of trillions. Even the richest VCs
and hedge funds can’t afford this. There’s only two groups of people who can afford
this. The first is governments but they’re still stuck on Internet Explorer so they're
out of the question. The other is big tech companies. OpenAI realized this 4 years ago.
That’s why they stopped being a non profit and partnered with Microsoft. And let me just say,
partnering with Microsoft was a brilliant decision. Partnering with Google wouldn’t
have been nearly as effective because Google wouldn’t have been in any rush. They wouldn’t
feel threatened so they could just go at whatever pace they want. But, Microsoft on the other hand,
was thirsty for marketshare. Bing and Edge had been getting destroyed by Google for years,
so AI was Microsoft’s big shot at taking back the lead and they ate it up. At the same time,
OpenAI was also able to provoke Google and start the biggest tech war since like iOS vs Android.
And now, they suddenly have the full financial support and attention of a $2.5 trillion company.
So, the answer is no, OpenAI cannot afford to survive with their million dollars salaries and
$28 million in revenue. But don’t worry, they’re not going anywhere because they’ve found a sugar
daddy that’s gonna make sure that they get through the finish line. Somehow Microsoft has
become Google’s biggest competitor, but they’re also not scared to partner with Google either.
If you wanna learn about how Microsoft became the most humble tech company, check out this video.