Hacker News Reader

Comment by Etheryte | Hacker News Reader

> OpenAI reportedly made a loss of $5B in 2024. They also reportedly have 500M MAUs. To reach break-even, they'd just need to monetize those free users for an average of $10/year, or $1/month. A $1 ARPU for a service like this would be pitifully low.

This is a tangent to the rest of the article, but this "just" is doing more heavy lifting than Atlas holding up the skies. Taking a user from $0 to $1 is immeasurably harder than taking a user from $1 to $2, and the vast majority of those active users would drop as soon as you put a real price tag on it, no matter the actual number.

View on HN

Ok, I clearly should have made the wording more explict since this is the second comment I got in the same vein. I'm not saying you'd convert users to $1/month subscriptions. That would indeed be an absurd idea.

I'm saying that good-enough LLMs are so cheap that they could easily be monetized with ads, and it's not even close. If you look at other companies with similar sized consumer-facing services monetized with ads, their ARPU is far higher than $1.

A lot of people have this mental model of LLMs being so expensive that they can’t possibly be ad-supported, leaving subscriptions as the only consumer option. That might have been true two years ago, but I don't think it's true now.

There are some big problems with this, mostly that openAI doesn't want to break even or be profitable, their entire setup is based on being wildly so. Building a Google sized business on ads is incredibly difficult. They need to be so much better than the competition that we have no choice but to use them, and that's not the case any more. More minor but still a major issue is the underlying IP rights. As users mature they will increasingly look for citations from LLMs, and if open AI is monetizing in this vein everyone is going to come for a piece.

> mostly that openAI doesn't want to break even or be profitable, their entire setup is based on being wildly so.

I’m sure you are going to provide some sort of evidence for this otherwise ridiculous claim, correct?

OpenAI is attempting to develop AGI. For most definitions of AGI, that would be a pretty wild success.

Theres another path where AI progress plateaus soon and OpenAI remains a profitably going concern of much more modest size, but that is not the goal.

To make a billion dollars, I would simply sell a Coke to everyone in China. I have been giving away Coke in China and it is very popular, so I am sure this will work.

You joke, but for food and beverages, a stand in the supermarket giving the stuff away for free is a really common (and thus successful) tactic.

It’s successful for some, but not for everyone. People play roulette all the time but that doesn’t mean everyone other than the house is making a profit. (BTW supermarkets charge for promotional space.)

The word "just" is a huge red flag for me. Any time I hear somebody say "just", it makes me extra skeptical that the speaker understands the full breadth of the problem space.

It's easy. All OpenAI has to do to break even is checks notes replicate Google's multi-trillion dollar advertising engine and network that has been in operation for 2+ decades.

Agreed. Not to mention that having 500m paid users would dramatically change usage and drive up costs.

Better math would be converting 1% of those users, but that gets you $1000/year.

>This is a tangent to the rest of the article, but this "just" is doing more heavy lifting than Atlas holding up the skies. Taking a user from $0 to $1 is immeasurably harder than taking a user from $1 to $2, and the vast majority of those active users would drop as soon as you put a real price tag on it, no matter the actual number.

Hard indeed but they don't need everyone to pay only enough people to effectively subsidise the free users

I thought that services like these were run at a loss because the data that users provide is often worth more than the price of a subscription.

Only if you can find a way of monetisng that data or selling it on.

So, basically, ads.

The entire businessmodel may only work as long as inference takes up the physical space and cost of a small building.

Last time personal computing took up an entire building, we put the same compute power into a (portable) "personal computer" a few decades later.

Can't wait to send all my data and life to my own lil inference box, instead of big tech (and NSA etc).

Last time personal computing took up an entire building, we weren’t anywhere near as close to the physical limits of semiconductors as today, though. We’ll have to see how much optimization headroom there is on the model side.

“Last time” we weren’t up against physical limitations for solid state electronics like the size of an atom, wavelength of light, quantum effects, thermal management, etc.

exactly, TSMC literally slow down to break their latest node technology

while few years back, it do it bianually

There are more monetization ways than just a hard paying user. You can ask Google or Facebook. I dont think its super hard to get chatgpt to a. Profitable business. Its probably the most used service currently out there. And its use and effectiveness is immense.

I wonder how many more watts does producing an answer OpenAI use than answering a Google search query.

This is a good article on the subject. Make sure you read the linked articles as well.

https://andymasley.substack.com/p/reactions-to-mit-technolog...

It’s basically the same story as this article: people incorrectly believe they use a huge amount of energy (and water), but it’s actually pretty reasonable and not out of line with anything else we do.

Of there 500M users a very small number are already paying, so it's not zero-to-one for all of them, but monetize more and take $10 a month to $100. It's unclear if this is easier or harder than what you presented, but both are hard.

500M MAU also implies that some are already paying. They need to extract 1$ more on average, not just get all of them to pay 1$ per month. This, I imagine is harder than assuming there are 500m users that pay nothing today.

Exactly, when the cost is free, I can ask it for whatever stupid thing I can think of.

The minute it starts costing me money, I have to make that decision: Is this worth the dollar?

$1 in monetization doesn't mean $1 in subscription. It means advertising, affiliate links, traffic deals.

It's doing some heavy lifting but not that much. Saas subscriptions are not the be-all and end-all of software monetization. He's saying they need to get $1 more on average, not convert all users to $1 subscribers. Doable.

Another problem is once they're on the pro plan using better models the users are more expensive

This is true only because people are so dumb.

Paying $1000 for an iPhone? Sure. $10 for a Starbucks? Sure. $1 per year for LLM? Now hold on, papa is not an oil oligarch...

A 1000$ iPhone over 5 years is 17$/month, is it worth 17x as much as a free tier LLM?

For most people yes. Also many people are spending for less than 1000$ for their phones.

People pay for the perceived value. If apple started by giving away iPhones they would balk at paying that much for them too. It's also very well know that free to anything is much harder than increasing the price

It's not only that they're stupid, it's the fact that maybe they don't really need it. Do they really need an iPhone? in a sense, yes, since the alternative still means spending a good amount of money and in no way they can do without a phone.

The LLM usually provides negative value tho. Unlike the iPhone which can theoretically play mobile games.

The iphone is worth infinitely more because every time I ask it for some information it returns for me the fact I asked for, no hallucinations.

Reply on news.ycombinator.com