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Comment by averageRoyalty | Hacker News Reader

With first mover advantage disappearing for OpenAI and very good alternatives appearing, one wonders how long they can sustain a multi billion dollar per year loss[0].

The launch of ChatGPT was earth shaking, but what have they done since that impacts or excites the average consumer? Does their revenue even come from the average consumer, or primarily from API users that will lift and shift to a viable competitor?

I don't know, but I'm very curious to see how they can hold their lead and be attractive in the longer term.

0. https://www.cnbc.com/2024/09/27/openai-sees-5-billion-loss-t...

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ChatGPT is an extremely successful consumer product. Looking at Search traffic alone indicates they clearly have large brand value. Usage doesn't just depend on just benchmarks for most consumers.

There's large brand value, and then there's $300B brand value.

Without a moat, it's hard to argue OpenAI's value is that high.

You can choose as an investor between:

a) Coca-Cola (~$300B, profitable, stable, stock-listed, well-known addictive brand, accepted business model with steady growth)

b) OpenAI (bleeding cash: $5B lost last year, tech that is not really novel anymore, weird corporate setup, competition that offers similar products).

It's not that easy to support the idea that OpenAI will be the winner.

I've been saying the same thing about Tesla for years, but here we are. The market can stay irrational blah blah blah

Well now that the Donald is running the US and is about to cut subsidies for electric vehicles, add tariffs to aluminum and steel, now maybe the markets may see the light, I am not holding my breath though.

Steel and aluminum tariffs will hit all car manufacturers simultaneously.

If all cars are more expensive, and all manufacturers have lower margins Tesla will have lower margins too. For the stock price the competition won't be other car manufacturers but other industries.

It would be a "subsiding tide lowers all boats" kind of thing.

I've been thinking, when I younger and living in the UK, all sorts of things (including some with the word "tax" in them) were denounced by the local right wing as "stealth taxes".

Trump is talking about tariffs as if they're a tax on non-Americans, but they're paid for by Americans who import stuff, which is basically all Americans given where your oil, aluminium, and steel come from.

Those tariffs are a stealth tax.

Tesla- being more vertically integrated- stands to benefit from disproportionately increased costs for its competitors

Just because costs are higher for its competition doesn't mean that people are going to be buying more Teslas. Last I checked, Tesla was already down 40-60% in sales at its major European markets. They're getting absolutely slaughtered by BYD in China.

I mean as long as people are still buying cars, Tesla becomes more cost competitive. But in the short run it's not for consumers as much as it is for investors.

You may be right that Tesla will struggle internationally and the car market as a whole will struggle in USA

Cutting subsidies would weaken Tesla's competitors (according to Musk)

That comparison also shows that a recognizable brand alone can easily be worth more than 100 billion; Coca-Cola also has competition that offers similar products and zero tech advantage, but they still managed to keep their number one spot for decades.

Two bets with the same expected value can have wildly different variance.

The OpenAI bet is clearly that they build AGI and become the worlds first $10T company. At this valuation you only need to think it’s P > 0.1 for it to be a reasonable bet.

Coke is not a “swing for the fences” investment.

OpenAI is pre-revenue, they're a pure play.

It's not about how much you earn, it's about how much you're worth.

Marking “new tech paradigm isn’t about turning a profit/ the rules have changed” on my tech bubble bingo card.

For those not in the know: https://www.youtube.com/watch?v=BzAdXyPYKQo

the 'tres commas' era feels so quaint these days.

Is it already 1997 again?

The choice is not between that. It's between which of the two businesses can deliver outsized growth & returns back to the investor in their time horizon.

So invest all your money in Coca-Cola and maybe beat inflation by one or two percent.

Or you can gamble it all on a meme stock and maybe 100x your wealth.

Institutional investors are doing both.

Well, on the whole you can't because OpenAI isn't listed. If it was, retail investors would be piling in.

Huh? These are very different investment goals, you're not choosing between a or b

OpenAI's real moat is all in their know-how about developing LLM architectures and training them. That stuff can be expected to be very hard to replicate, no matter how hard anyone tries. The best case for OpenAI is actually if the DeepSeek R1 improvements are genuine, and OpenAI can adopt them to make their upcoming models even more capable than they would be otherwise.

The best moat is that their technology is used by microsoft - who forced it on tons of paying subscribers.

Of course microsoft can switch to a better model, but a better model will not easilu build such a such a big subscriber base.

Now openai is powering tons of microsoft tools which are used by tons of people due to office integration.

> indicates they clearly have large brand value

BlackBerry, Nokia, Yahoo, and MySpace were popular at one point but couldn't keep up.

Yahoo is still website number 7 or 8 in the US.

Interesting. I would not have guessed that. https://www.similarweb.com/top-websites/united-states/

I don't know a good source for MAU numbers, but they would have to be very different with mobile app usage included.

I would guess that OpenAI (possibly as part of Microsoft or another company) will still be in the top 7 AI companies in a few years.

Conversions to paid users us only 5-6% though

https://beta.bnnbloomberg.ca/business/company-news/2024/10/2...

Does that number matter?

What’s the conversion rate on any single typical ad hosted by Google? Yet it all adds up to make a lot of money, for Google and (presumably) the advertisers.

Indeed it matters. A popular website is only financially valuable if the site owner runs ads on it, as Google does. Without ads, ChatGPT's consumer business model is not much different from WinRAR with its soft 60-day trial period. Sure, some % of its users upgraded to the full thing. Everybody else had humbler use cases covered by the free functionality (the 60-day expiry was famously not enforced).

Once zip/unzip technology became commodified (either by being baked into the OS or open-sourced as happened with 7zip), paid 3rd party tools were no longer needed and WinRAR's business disappeared.

As more advanced AI features get bundled into apps that users are already using like Google Search, FB, etc. there will be less incentive to have a separate ChatGPT subscription (even if it's slightly better, it won't matter to most people).

The one bundled to google search is so poor quality that it is degrading google experience...

How much of that community would jump ship on change of ownership? Not that Altman is any better than Musk but Musk has certainly created a more negative publicity about himself recently and thus more distrust or people of certain political stripes unwilling to use his products (scientific community probably leans that direction).

I've soured on Altman, but he's MUCH better than Musk. It's not even a competition.

they just need to find some laws to break or some poor people to exploit so they can be like other big SV startups.

Don't you think that the brand is huge though? It has become a household name and it's synonymous with artificial intelligence. They're also supposed to get grotesque amount of investments which is supposedly more than twice the value of what Musk offered(They have %40 stake in the project Stargate, which is supposedly $500B thing).

> Don't you think that the brand is huge though?

The world is littered with old once-great brands.

Intel would like a word.

You talk numbers, so let me ask you a numbers question: at their current valuation, if the brand is 60% of the value that’s top 5 estimated brand value.

Is OpenAI really one of the five most valuable brands in the world?

How did you choose 60% as the brand value ratio?

It got mentioned in the new york times and South Park a handful of times. How many billions is that worth if your technology is obsolete, your prospects are poor, your employees are taking the piss in interviews...?

> your employees are taking the piss in interviews...?

What does that mean?

It's an English term for mocking, teasing, ridiculing. I believe from the link of "piss" being alcohol. "He's on the piss again."

Yep. I use ChatGPT a lot, so much so that each day there is some point where it switches from version 4 to version 3. I don't even notice a difference.

I don't think you guys understand the reach of chatGPT. I live in Brazil and I was in line at a restaurant when I saw an older lady (around 60~70 years old) chatting with chatGPT on her smartphone. That's when I realized that chatGPT burst the bubble and by a lot.

We in the tech bubble know all the competitors and all the other products related to AI, but I guarantee that 98% of the rest of the world just knows chatGPT and some of them use it, even people who struggle to turn the Bluetooth on/off.

It's really hard to replicate this, I'm pretty sure this lady will never have the Claude or DeepSeek app installed on her phone, but she will be using chatGPT in the meantime.

According to this analysis from a few months back: https://www.wheresyoured.at/oai-business/

OpenAI are kind of fundamentally unsustainable as a business.

This is the modern version of 2010's "Amazon makes no money in retail"

But isn't it the case that the cash cow for Amazon is actually AWS? That is, without AWS would we consider Amazon to be the success we see it as today?

Yes we would.

Keep in mind that while the store brings in a majority of revenue, it provides less than 20% of operating income. A majority of operating income comes from AWS (which provides less than 20% of revenue).

https://www.fool.com/investing/2024/01/10/amazon-e-commerce-...

Forget about AWS and simply compare Amazon with other offline/online/mixed stores.

"In 2023, Amazon accounted for 37.6% of all e-commerce sales in America, which was light-years ahead of second-place Walmart at 6.3%."

Amazon is highly successful even without AWS.

Amazon weren't making money because they were expanding rapidly and had a lot of capex.

OpenAI don't make money because they're losing money on inference. If you remove their capex - training costs, which you can't because they have to remain competitive, they'd still be losing money.

I see your overall point, i think it is the wrong comp. It compare more to SAP or Atlassian.

I'm curious how you put OpenAI, SAP & Atlassian all in the same category. Do you mind explaining your thinking?

It's a comparison, not a same category.

Leaders in their market, at first because of a small moat and large advance, then the advance shrink but the brand will stay first for at least a decade due to brand recognition.

The Amazon comp works less, unless openAI start to suddenly build the sell their own chips.

My understanding is that they sold a large chunk of the business to Microsoft in exchange for nearly unlimited Azure credits

If someone has 0 understanding of what an embedding model is used for, I seriously question their ability to predict winners and loser in AI.

> OpenAI has a "text embeddings" API that is used primarily for tasks where you want to identify anomalies or relationships in text, or classify stuff in text"

Before I read this 32-minute long article, who is Edward Zitron and why should I care about his opinion or analysis?

Zitron is a blogger whose content/internet personality is centered around being anti-Big Tech, and very much falls in the "AI is dumb/useless and will die any day now".

He's a good writer, but his content is written through an extreme anti-AI lens, so take it with a pretty big grain of salt.

From scrolling though his articles he is a guy who likes to write polemic articles declaring companies dead

It would have been easier to Google him, or ask Claude/Mistral to write you a summary of his article.

I hadn't heard of the author before that article, but all the math and logic in it is sound. There is some guesswork on exact numbers (because OpenAI don't publish that sort of information) you can disagree with, but IMO it's fairly generous in their favour. And it still looks pretty bad for their financial prospects.

We're here for human interaction, it's pretty condescending to tell someone to "Google it".

Ed Zitron has written many newsletters chronicling the business economics of OpenAI/other AI companies and their incentives.

They're the most comprehensive writeups in that aspect, although not as technically-oriented as most content on HN.

From the first release? A lot. It is much much smarter and multi modal.

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