Uncertain Tomorrows: OpenAI May Face Financial Struggles Due to ChatGPT

OpenAI, an artificial intelligence studio which gained prominence with its chatbot ChatGPT is reportedly grappling with a severe financial challenge that raises concerns about its solvency. Due to enormous expenses arising from the famous AI bot, the company might go bankrupt by the end of 2024.

Reading Time: 3 minutes

openai facing financial crisis

Illustration: Lenka T.

As disclosed by a recent report, OpenAI allocates a whopping $700,000 each day to sustain ChatGPT. This chatbot, which is deemed as a flagship product of the company, is capable of producing lifelike and engaging conversations on diverse subjects. 

Yet, in spite of the bot’s extraordinary capacities, OpenAI is struggling to generate sufficient revenue to offset ChatGPT’s operational costs. The company did attempt to monetize its upgraded GPT versions (GPT-3.5 and GPT-4). However, progress on this front has been limited. 

The drop in user database 

The report has also uncovered that OpenAI has experienced a decline in user engagement over the last few months. As SimilarWeb reports, the number of ChatGPT users declined by 12% in July 2023 compared to June.  

The figures dropped from 1.7 billion to 1.5 billion. Notably, this statistic excludes users employing OpenAI’s APIs, which enable developers to integrate GPT into their applications. 

Speaking of which, the APIs are confronting fierce competition from various open-source large language models (LLMs), such as LLaMA 2. Being open-source, all those LLMs are freely adaptable and customizable. In contrast, OpenAI’s offerings remain paid, proprietary, and restricted. 

Clash of visions: Sam Altman vs. OpenAI 

The report suggests discord between Sam Altman, OpenAI’s co-founder and CEO, and the rest of the company. Expectedly, OpenAI is striving to accrue more profit and develop advanced GPT iterations. Altman, on the other hand, has been vocal about the hazards and potential perils of unchecked AI, particularly with the lack of governmental regulation. 

Altman has consistently cautioned that unregulated AI could lead to mass job displacement and ethical predicaments. Some experts speculate that Altman’s stance might mirror the remorse of Dr. Frankenstein – a creator grappling with his uncontrollable creation. 

Despite Altman’s reservations, OpenAI is seeking innovative revenue streams for its upcoming GPT-4 model. However, achieving profitability remains elusive, as the cumulative losses since ChatGPT’s inception have surpassed $540 million. 

An uncertain path forward 

OpenAI’s future now hangs in the balance. The company secured a $10 billion investment from Microsoft and other venture capital firms, affording it temporary stability. Nonetheless, the report underscores OpenAI’s ambitious projections of $200 million in annual revenue for 2023 and a goal of $1 billion for 2024 appear implausible, considering its ongoing financial setbacks. 

An IPO (initial public offering) may be a potential avenue for OpenAI to consider, attracting interest from prominent tech corporations or conglomerates for acquisition. This could offer a viable exit strategy for existing investors.  


Source: Freepik

Nevertheless, several challenges loom. One significant concern pertains to staffing, as the report indicates OpenAI is grappling with retaining and recruiting talent. Namely the company has already witnessed the departure of employees to join other AI studios or projects. Any further departure of key employees to rival AI endeavors could erode the quality and innovation of OpenAI’s offerings. 

Presently, OpenAI is experiencing a phase marked by heightened attrition rates. The company might not be resorting to the layoffs witnessed elsewhere in the tech industry. Still, it is losing valuable personnel to competitors, which could have implications for their product and service excellence. 

The rise of competition and disrupted supply chain dynamics 

A significant factor amplifying OpenAI’s challenges is the intensifying competition landscape. Although tech giants like Google and Meta often feature as OpenAI’s main rivals, the emergence of Musk and his xAI initiative adds an underappreciated layer to the rivalry.  

Musk’s prolonged engagement with AI, primarily through Tesla, gained new momentum with the viral success of ChatGPT. This impelled Musk to take substantial strides in the AI realm. Notably, he publicly unveiled plans to introduce a rival chatbot named TruthGPT, positioned as a less biased and more reliable alternative to OpenAI’s ChatGPT. 

elon musk truthgpt

Source: GizChina.it

The AI industry is also grappling with supply chain disruptions that significantly impede progress. All AI models hinges upon robust computing power, a critical aspect that faces ongoing challenges due to the scarcity of enterprise-grade GPUs.  

The complexities are further exacerbated by the backdrop of the US-China Tech war, prompting Chinese AI and internet enterprises to exhaustively procure enterprise GPUs through intermediaries. Some of these entities have even established direct collaborations with leading AI chip manufacturers. 

Altman, in response, underscored the dire implications of the GPU scarcity for OpenAI’s endeavors to enhance and train novel models. OpenAI’s pursuit of a trademark for ‘GPT-5’ underscores its commitment to continued model advancement. However, this resource crunch has perceptibly impacted the quality output of ChatGPT. 

Collectively, the confluence of factors – escalating financial challenges, dwindling user engagement, the struggle to sustain consistent and substantial revenues, and the observable decline in the flagship product’s quality – unambiguously signals OpenAI’s precarious predicament. Swift strategic adjustments are imperative for OpenAI to chart a course toward profitability in the face of these multifaceted challenges. 

"Ever tried. Ever failed. Never mind. Try again. Fail better."