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Comment by minimaxir | Hacker News Reader

> OpenAI demonstrating the size of their moat. How many multi-million-dollar funded startups did this just absolutely obsolete?

For posterity since the term has been misused lately, having a very good product isn't a moat in the business sense. There's nothing stopping a competitor from creating a similar product (even if it's difficult), and there's nothing currently stopping OpenAI's users from switching from using Sora to a sufficient competitor if it exists.

Sora is more akin to a company like Apple/Google a decade ago using their vast resources to do what a third-party does, but better (e.g. the Sherlocked incident: https://www.howtogeek.com/297651/what-does-it-mean-when-a-co...).

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"having a very good product isn't a moat"

It definitely is. Having the best product and being able to maintain that best-in-class product status over time through a firm's 'internal capabilities' is very much a moat and a strong one at that. A moat is the business strategy sense is anything that enables a firm to maintain competitive advantage. Having the best product in a category, and being able to maintain that over releases is a strong competitive advantage (especially when there is high willingness to pay or price is a strong competitive dimension compared to the value created).

That's not a real moat except in one sense: if it is really expensive to get to the level to compete, and you know a competitive market would bring margins near zero, then no competitor may actually step up. We see this in off-patent drugs, where it may have 200X margins but no competitor will go through the FDA manufacturing reapproval process because they won't actually get those margins if they begin competing on price, and then the sunk cost of getting to the competitive level isn't worth anything for them.

I think OpenAI's big moats are in userbase feedback and just proprietary trade knowledge after they stopped sharing model details. They may have made some exclusive data source deals with book/textbook and other publishers, though it isn't clear a license is actually needed for that until things work through the courts.

Nah, this is gonna be the next big thing since the Iphone. You're gonna see Sam surpass Elon in the next decade

OpenAIs moat is their massive access to capital and compute. That’s what I mean.

Again, that's not a moat.

The original "We Have No Moat, And Neither Does OpenAI" leaked memo from Google that memefied the term focuses explicitly on the increasing ease of competitors (especially open-source) entering the ecosystem: https://www.semianalysis.com/p/google-we-have-no-moat-and-ne...

First of all, the term moat comes from Warren Buffet, and has to do with his investment strategy: https://finance.yahoo.com/news/warren-buffett-explains-moat-...

Second: Massive capital expenditure, specifically in this case the huge cost of building or leasing enormous GPU clusters, is *exactly* what he means by this.

Exactly, to create larger and better performing models, there is no lack of ideas or techniques. The real problem is to have the GPUs for that.

I disagree mainly because google, aws, apple, etc. All have similar, or even more access to GPU compute and funding for it, and in google's case also has been one of the main research contributers, yet they still struggle to touch GPT4's performance in practice.

If it was as simple as dropping 10's millions on compute they could do that, yet google's bard/gemini have been a year behind GPT4's performance.

That said I do agree that it's a moat for the startups like stability/mistral, etc. They also have access to $/compute, albiet a lot less. And you can see this in their research, as they've been focused on methods to lower the training/inference costs.

*I'm measuring performance by the chatbot arena's elo system and r/locallama

> What we're trying to find is a business that, for one reason or another -- it can be because it's the low-cost producer in some area, it can be because it has a natural franchise because of surface capabilities, it could be because of its position in the consumers' mind, it can be because of a technological advantage, or any kind of reason at all, that it has this moat around it.

He didn't seem to have specific definition at all really.

I think most people attribute it to a "secret sauce technology" in the case of OpenAI, I'm not sure if "finances to lease a huge cluster of GPUs" makes sense here because the main competitors (Google, AWS, Apple, etc) also have access to insane compute as well yet have struggled to get close to GPT4's performance in practice.

I believe that Google actually has more AI compute at their disposal than OpenAI. They have been building out their TPU infrastructure for a while now. OpenAI is reliant on Azure obtaining nvidia GPUs.

So at least in the battle between OpenAI and Google, their moat right now are their models.

Moats have never been uncrossable, they just make it harder to get to the walls.

I agree it isn't a moat in the business sense - that would be some kind of lock in network effect.

e.g. If ChatGPT being popular gives OpenAI enough extra training data, they're locked in forever having the best model, and it is impossible for anyone - even with unlimited money, and the same technology - to beat them. Because they don't have that critical data.

Yes, Google had the best search product, and got a huge market share simply by being better. Their moat however is that their search rankings are based off the click data of which search results people use and cause them to stop their search because they've found a solution.

They also have a moat to do with advertising pricing, based on volume of advertising customers.

Bing spend a lot of capital, and had the tech ability, but those two moats blocked them gaining more than a tiny market share.

In this case, maybe OpenAI will have a video business moat, maybe they don't...

Google, Microsoft and Facebook have capital and compute. That is not an OpenAI moat.

Facebook has Moat because of their social network. It is very hard to switch to another network. Google with search has no moat because it is easy to switch to a new search engine. OpenAI has no moat because it is easy to switch to a new AI chat once a better product becomes available. AWS has moat because it is hard to switch cloud providers. Apple has moat because people want to buy apple products. etc.

A moat can be seen where even if you have a worse product than the competition, or users hate you, they still use your products because the cost to switch is immense.

Being (a) first and (b) good enough is a moat. Nothing stopped people from switching from google to bing all these years other than not having any reason to.

Google wasn't the first, as all those altavista investors will unhappily attest.

They were the first to "good enough", which is what the GP is talking about.

> There's nothing stopping a competitor from creating a similar product

This is like saying there’s nothing stopping a competitor from launching reusable rockets into space. Of course there isn’t, but it’s hard and won’t happen for the foreseeable future.

Similarly with a physical moat, it’s not impossible to cross, but it’s hard to do.

It’s not the same because there is basically no cost to trying an OpenAI competitor. Betting your payload on an up and coming rocket company is a major business risk.

There is nothing stopping Wolkswagen from creating a product similar to Tesla.

There is nothing stoping Microsoft from creating a search engine as good as Google’s.

There is nothing stopping Facebook from creating an iPhone alternative, after all it’s just engineering!

There is nothing stopping Google from beating GPT-4.

Shall I go on?

To what end?

The point is that "moat" gets conflated with just being ahead in the game. I don't find it a super interesting point of contention, but there is a distinction alright.

Having a very good product can be a moat if it takes enormous resources and skill to create said product.

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