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Comment by fishtoaster | Hacker News Reader

I feel like Figma and OpenAI are apples and oranges.

Figma is a really strong business. You can show spreadsheets and charts to make a pretty convincing case that it'll make a lot of money. It's not terribly risky.

OpenAI is really strong tech without much product market fit. It's got a ton of mindshare, but that's about it. Buying them is making a big bet that you can somehow turn that into a big business.

So one is a low-risk, medium-reward buy, and the other is a high-risk, high-reward buy. Even if OpenAI ultimately changes the world a lot more, its expected value now is close(ish) to Figma's.

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> OpenAI is really strong tech without much product market fit. It's got a ton of mindshare, but that's about it. Buying them is making a big bet that you can somehow turn that into a big business.

That's the YouTube argument. "Yeah, everyone uses it but it's not like they're able to make money", stated about a company that's iterating its products faster than viable competition can react. In this case regarding one of a few actors in the world that can plausibly access the computing resources required to build on the bleeding edge.

They've made something people want; they'll be successful.

Yeah, that's the bet!

A counterexample might be Twitter. It's something that lots of people want (judging by its usage), but it's really struggled to turn that into a business.

Whether OpenAI is the next Youtube or the next Twitter remains to be seen.

Twitter has about $5B a year revenue. The fact they aren't profitable is mostly because of they were/are a badly run business.

(Note that they just about break even every year. That's a sign they can control costs, but the lack of revenue growth points to the fact that - as everyone who has used it will tell you - their ad platform is terrible).

Twitter never really got the level of usage as YT though. 300 million is what I remember for their userbase.

I suspect that any service that crosses some threshold of users will almost certainly monetize it profitably.

I can't really tell if you're saying they're like or unlike YouTube, but YouTube did get acquired

Most folks commenting on this are probably not old enough to remember the controversy. But the original majority opinion was that YouTube would go bankrupt and die, having no potential to be profitable even after an acquisition. This in spite of having ridiculous growth and popularity.

> That's the YouTube argument. "Yeah, everyone uses it but it's not like they're able to make money"

Seeing that most rumors are that YouTube still isn’t profitable, that may not be the argument you think it is.

It's very unclear why anyone thinks YouTube isn't highly profitable.

Google has only released revenue numbers: Roughly $15B in 2020[1]. Costs are difficult to judge, but in terms of infrastructure they are probably somewhat comparable to Netflix.

For 2020, Netflix had roughly $24B revenue and spent $1.8B on "technology and development" (which is where their infrastructure costs are)[2].

Unless you think Google is much less efficient than Netflix (which uses AWS for a lot of their tech[3]) then it's difficult to see how YouTube could not be profitable. Even if YouTube costs 3 times as much at Netflix to run (I don't see how) Google still has $10B revenue to pay creators for, and they control both how much they pay creators and how much they charge advertisers.

[1] https://www.theverge.com/2020/2/3/21121207/youtube-google-al...

[2] https://ir.netflix.net/financials/financial-statements/defau...

[3] https://s22.q4cdn.com/959853165/files/doc_financials/2021/q4...

Infrastructure costs must be much higher than Netflix.

YT has far higher storage costs, their content caches way worse and they have to pay for all the tech involved with Content ID, commenting, search over a much larger index, a slick upload/edit experience, ad handling, ad targeting, handling highly heterogenous content etc. This is an org that had to design their own ASICs to keep up with transcoding demand, it's just not in the same galaxy as Netflix in this regard.

That said, YouTube may still be profitable. I doubt even Google knows. When I worked there a long time ago execs were routinely asked about whether particular products were profitable and the answers made clear that they usually had no idea. Too much shared infrastructure that can't be clearly accounted to any one product, and many products justified with hard to measure things like making web search better.

They also pay creators and have much higher storage costs

I have a better source now, estimating Google's gross profit margin for YouTube at 38%: https://mannhowie.com/youtube-valuation

Basically:

- 55% of Ad revenue goes to creators

- 7% of revenue on storage and data center costs (based on Google's 2019 annual report that reported how they depreciate their data center assets).

On top of that there are operating expenses, so operating profit margin is 3-18% (this is assuming their op-ex is much higher - almost twice - Netflix, but comparable to Facebook.)

Netflix pays for content too.

And until recently, Netflix has been borrowing billions - more than its net income to produce and acquire content.

Netflix pays once for content and it owns it. It’s a fixed cost. YouTube content creator costs scales with popularity

But Youtube controls how much they pay creators to a much greater extent than Netflix does.

Netflix commissions shows, and they have to have hits to drive subscriptions.

Youtube pays a percentage of the ads shown on each channel, which scales directly with the popularity. As the channel becomes more popular the creator gets paid more, but Google makes more money because the advertisers pay by views too.

Netflix doesn't have that property.

Pretty sure YouTube has never turned a profit. It, as everything Google does, exists solely to generate personal data.

> OpenAI is really strong tech without much product market fit

I wouldn't say that. There are a lot of companies making money on it already, there's definitely a market for it. They just aren't monetizing. It's more like how "growth startups" acquired users at a loss before turning on the monetization engine.

I suppose that depends what their monetization strategy is.

I haven't paid a ton of attention, but my impression was that it's "sell our tech via an API." This relies on other companies building things that make a lot of money on top of that API. I know some are, but I'm not aware of any particularly successful ones yet.

Maybe someone will find a killer application for this that solve an expensive problem for someone. In that case, yeah, OpenAI will make bank. Or maybe the best you'll see is a bunch of small fries selling fun toys and OpenAI will never really take off in terms of actual revenue. Or maybe, by the time someone finds killer applications for OpenAI's tech, the tech will already be available from other providers (like GPT-Neo or StableDiffusion).

Which companies are making money on it? I'm talking billion dollars.

None.

No one grows a "billion dollars" business that quickly.

A super-fast growing company like Slack took 5 years to reach $200M in annual revenue.

Jasper.AI is growing quicker than that. $45M in annual revenue last year, targeting $75M next year.

How would we know? they’d still be private. A billion in revenue is like a public company 3-5 years after IPO. The aggregate probably is making quite a bit, though.

https://www.jasper.ai/

Maybe in a few years if no competitors emerge.

how much is early adopter exploration?

I meant there are other companies who are building their entire companies (not just features) on OpenAI’s products and those companies have revenue. Been going on for a couple years. I was at one such startup.

They are kind of like a Stripe or Twilio in that sense (in their current form)

Other way to look at it is that you look at Figma as a product and OpenAI as a platform. What you will do with the platform is up to you. It's not easy to productize something like that and get good revenue - it's much riskier BUT if you already have many products in your portfolio (like MSFT) it's actually really good fit as you may enhance your existing product line...

I don't think there's a lack of product market fit.

People are already building a ton of products on top of LLMs - (Jasper AI, Copilot-related tools, etc.)

I would guess that OpenAI has infra, compute, and operational processes that blow these startups out of the water.

If an interested buyer wanted to monetize, I think they could do so fairly quickly and profitably.

What made Figma was its ecosystem. That and it was impacting Adobe's bottom line were reasons for its acquisition IMHO.

It'd be interesting to see what kind of locked in ecosystem OpenAI can build.

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