Tesla CEO Musk recently filed a lawsuit against OpenAI to stop an alleged “illegitimate” conversion of the company to a profitable organization. Data has now emerged showing the AI startup’s struggles, which could cause it to go out of business before 2028.
Elon Musk revived his legal battle against OpenAI by filing a new preliminary injunction in the US District Court in California on December 1. Musk’s initial lawsuit, filed in March 2024 in San Francisco, accused OpenAI of breaching a contract during its controversial transition from a nonprofit to a for-profit entity.
While its legal issues with Musk grab headlines, the company’s financial performance tells a more concerning story about its future. According to a tech consultant going by the handle @dokowords on X, OpenAI is facing an existential crisis, with mounting losses and a bloated business model.
OpenAI’s financial and operational woes
OpenAI’s 2024 revenue is expected to reach $3.7 billion, but its costs are projected to be a staggering $8.5 billion. Doko believes this gap, which continues to widen, signals a business model that is unsustainable in the long run.
In an X thread, the tech analyst listed several news reports, including one that predicted that OpenAI could accumulate losses of $44 billion by 2029, an amount that exceeds the annual budget of many of the world’s largest tech firms.
The thread mentioned a report shared by Analytics India, which showed that OpenAI’s flagship product, ChatGPT alone burned $700,000 daily in 2023. According to the research, when the daily costs are combined with $7 billion allocated for AI training and inference, plus $1.5 billion for staffing costs, OpenAI’s operational costs look unsustainable, and there is no indication that these expenses will decrease in the near future.
“Microsoft’s $10 billion investment in OpenAI is possibly keeping the company afloat at the moment,” the report stated.
With 290,000 out of 350,000 servers running at 83% capacity on Microsoft’s Azure cloud platform, OpenAI’s infrastructure is likewise under tremendous demand. This is especially troublesome since the business finds it difficult to satisfy the needs of its constantly expanding user base, which now numbers over 100 million daily active users and receives 3.6 billion monthly website visits, a 100% increase from the previous year.
The corporation just claimed that it intends to make $3.7 billion in revenue this year, according to financial data disclosed by The New York Times.
ChatGPT is expected to contribute $2.7 billion of that total. The remaining $1 billion will come from the company’s various business operations. However, the business claimed that it expects a $5 billion loss, excluding equity-based pay.
Competition from other AI startups
OpenAI’s business model faces stiff competition from rivals such as Microsoft, Google, and Anthropic. While the AI entity struggles with $8.5 billion in losses, Microsoft is building its own AI infrastructure, and Anthropic operates more efficiently with just $2.7 billion in costs.
Google, on the other hand, is planning to invest a massive $100 billion into AI development, relying on in-house infrastructure rather than paying for external services.
Last year, Elon Musk launched his own xAI, which recently raised $6 billion in a funding round that involved over 90 participants. xAI has now raised a total of $12 billion in 2024 as it builds on its aim to compete with other AI models in the industry.
OpenAI’s subscription-based revenue model, which charges users $20 a month, offers little competitive advantage, especially given the growing number of open-source alternatives. Customers can easily switch between services, making it difficult for OpenAI to retain users long-term.
Despite the competition, OpenAI’s CEO Sam Altman has set ambitious revenue goals, predicting that the company could reach $100 billion in revenue by 2029. However, the projections seem wildly unrealistic.
To meet this target, the AI company would need either a monthly subscription fee of $555 per user or 189 million paid subscribers at $44 per month, a far cry from its current base of 11 million paying users.
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