OpenAI is burning $700,000 daily on ChatGPT

Running ChatGPT costs an eye-watering $700,000 every single day.

Now, a new report from Analytics India Magazine claims that unless OpenAI finds a way to become profitable soon, the AI pioneer behind ChatGPT could potentially face bankruptcy by the end of 2024. Despite Sam Altman's aggressive moves to monetize GPT-3.5 and GPT-4, the math simply isn't adding up fast enough.

Traffic dips while open-source rises

The viral excitement that made ChatGPT the fastest-growing consumer app in history appears to be cooling off.

According to data from SimilarWeb, traffic to the ChatGPT website dropped from 1.9 billion visits in May to 1.7 billion in June, and plummeted another 12 percent in July down to 1.5 billion. While some observers chalk this up to students going on summer break, enterprise behavior is also shifting dramatically.

Companies that initially barred employees from touching ChatGPT are now bypassing the web interface entirely to build bespoke internal bots using OpenAI's APIs. Worse for OpenAI's bottom line, Meta's commercially friendly Llama 2, ironically partnered with Microsoft, offers businesses a free, customizable alternative to OpenAI's restricted proprietary models.

A $10 billion safety net

OpenAI is currently projecting $200 million in revenue for 2023 and has set an ambitious target of $1 billion for 2024. But its financial hole is deep.

Reports indicate OpenAI suffered losses of around $540 million last year as development costs surged. Sam Altman himself previously tweeted that compute costs are simply eye-watering. For now, Microsoft's massive $10 billion investment is keeping the lights on.

Going public isn't an escape hatch anytime soon either. An Investopedia analysis recently pointed out that top AI startups like OpenAI, Anthropic, or Inflection are nowhere near ready for an IPO, which typically requires a decade of operations and consistent profitability.

Why it matters

Do we actually expect OpenAI to go bust in 2024? Almost certainly not. Microsoft has invested far too much money, cloud infrastructure, and product strategy into this partnership to let OpenAI go down without a fight.

However, the report shines a bright light on the brutal unit economics of generative AI. For developers and founders, it highlights why relying exclusively on proprietary APIs is risky, especially as open-source models like Llama 2 prove that good enough and locally hosted can easily beat expensive and closed.

We think the real danger for OpenAI isn't outright bankruptcy, but margin compression. If enterprise users migrate from premium ChatGPT Plus subscriptions to cheaper API calls or completely free open-source models, OpenAI's daily $700,000 compute bill turns into an unsustainable tax on its own popularity.