Downvoted by salty juniors with skill issues who wouldn’t know transformer architecture if it sat on their face. It’s cool I get it. I’m still your friend.
People crying about the revenue gap constantly forget that OpenAI still hasn't turned on the ads, porn, and gambling. Trust, they will turn it on eventually.
The most interesting point about OpenAI I have heard lately is they are literally trying to make themselves too big to fail. If they go down so does everyone else, which explains all those strange deals with everybody and the comment from their (cfo?) about being backstopped by the gov.
this is super overblown. what their executive said was that eventually the scale of compute required is so large, that it requires not only investing in new DCs, but new fabs, power plants, etc, which can only happen if there is implicit government support to guarantee 10+ year investment horizons required for the lower level of capital investment. that is not controversial at all and has nothing to do with OpenAI specifically being too big to fail.
The article mostly focuses on ChatGPT uses, but hard to say if ChatGPT is going to be the main revenue driver. It could be! Also unclear if the underlying report is underconsidering the other products.
It also estimates that LLM companies will capture 2% of the digital advertising market, which seems kind of low to me. There will be challenges in capturing it and challenges with user trust, but it seems super promising because it will likely be harder to block and has a lot of intent context that should make it like search advertising++. And for context, search advertising is 40% of digital ad revenue.
Seems like the error bars have to be pretty big on these estimates.
> It also estimates that LLM companies will capture 2% of the digital advertising market, which seems kind of low to me.
I'm not super bullish on "AI" in general (despite, or maybe because of working in this space the last few years), but strongly agree that the advertising revenue that LLM providers will capture can be potentially huge.
Even if LLMs never deliver on their big technical promises, I know so many casual users of LLMs that basically have replaced their own thought process with "AI". But this is an insane opportunity for marketing/advertising that stands to be a much of a sea change in the space as Google was (if not more so).
People trust LLMs with tons of personal information, and then also trust it to advise them. Give this behavior a few more years to continue to normalize and product recommendations from AI will be as trusted as those from a close friends. This is the holy grail of marketing.
I was having dinner with some friends and one asked "Why doesn't Claude link to Amazon when recommending a book? Couldn't they make a ton in affiliate links?" My response was that I suspect Anthropic would rather pass on that easy revenue to build trust so that one day they can recommend and sell the book to you.
And, because everything about LLMs is closed and private, I suspect we won't even know when this is happening. There's a world where you ask an LLM for a recipe, it provides all the ingredients for your meal from paid sponsors, then schedules to have them delivered to your door bypassing Amazon all together.
All of this can be achieved with just adding layers on to what AI already is today.
> It also estimates that LLM companies will capture 2% of the digital advertising market, which seems kind of low to me.
This cannot all be about advertising. They are selling a global paradigm shift not a fraction of low conversion rate eyeballs. If they start claiming advertising is a big part of their revenue stream then we will know that AI has reached a dead end.
Maybe users will employ LLMs to block ads? There's a problem in that local LLMs are less powerful and so would have a hard time blocking stealth ads crafted from a more powerful LLM, and would also add latency (remote LLMs add latency too, but the user may not want to pay double for that)
Is there any link directly to the report? I am unable to find any in this article or a number of others which seem to just copy the same information here.
I think beyond the number of crazy assumptions (no Google taking market share in the consumer market?? only 2% of digital advertising expected to be captured by OpenAI?) it is hard to nail down which levers could move which might make this funding hole disappear.
No, and there never will be. The second you ask anyone for hard numbers about OpenAI’s (or any AI’s) unprofitability, everyone evaporates (which is weird considering how quantitative the HN crowd tries to be, compared to, say, reddit). Everything is just “professional opinions” on economics by tech bro bloggers.
The team also assumes LLM companies will capture 2 per cent of the digital advertising market in revenue, from slightly more than zero currently.
This seems quite low. Meta has 3.5 billion users and projected ~$200b revenue in 2025. ChatGPT is at ~1 billion so far. By 2030, let's just stay ChatGPT reaches 2 billion years or 57% of Meta's current users.
I'd like to think that OpenAI's digital ad revenue should reach 10% by 2030 an then accelerate from there. In my opinion, the data that ChatGPT has on a user is better than the inferred user data from Instagram/FB usage. I think ChatGPT can build a better advertisement profile of each user than Meta can which can lead to better ad targeting. Further more, I think ChatGPT can really create a novel advertisement platform such as learning about sponsored products directly via chat. I'm already asking ChatGPT about potential products and services everyday like medicine, travel, gadgets, etc.
I think people are severely underestimating ChatGPT as a way to make money other than subscriptions. I also think people are underestimating the branding power ChatGPT has already. All my friends have ChatGPT on their phone. None of them except me has Gemini or Claude app.
This doesn't account for OpenAI's other ambitions such as Sora app.
Hey Sam Altman or OpenAI employee, if you are reading this, I think you should buy the North American version of TikTok if the opportunity presents itself. The future of short videos will be heavily AI generated/assisted. Combine Tiktok's audience with your Sora tools and ChatGPT data and you got yourself a true Instagram competitor immediately. If the $14b sales price of US Tiktok is real, that's an absolute bargain in the grand scheme of things.
people hate ai content. if you dont believe me go into the comment sections of basically any IG reel these days. Plus, nothing locks these videos/reels into a single platform. I’ve seen so many sora videos on IG and I’ve yet to (and dont want to) use sora.
It is not losing money, the whole industry haven't figured out how to generate revenue yet.
it is the starting phase of LLM like we experienced in .com bubble.
Is it a bubble at this point? Yes. Can it generate revenue in the future? Yes.
Will openAI survive in this bubble? Maybe.
> I don't know anybody with a Microsoft 365 subscription
I don’t either, but the lesson to be learned is that you live in a bubble. Microsoft makes many millions of dollars a year off of those subscriptions. Just because the bubble of people you interact with doesn’t mean that those people don’t exist.
OK no that was a lie. I know one person that has a Microsoft 365 subscription. I hate it when he sends me word or outlook document links or whatever the hell. Just use Google docs, dude.
Also: Google One gives you 2 TB, MS 365 Family gives 6x1TB for roughly the same price (for a total of 6 seats). The packages differ in multiple ways, being different fit for different use cases.
Also note: I'm using Google docs at work, and while Word for one example has too many features, Google docs is lacking even on the basics like document styling (think custom paragraph styles), it is painfully inadequate for business use, lot of work is wasted on working its limitations around.
TL;DR - financial analysts look at current charts and project them foward by 5 years and go "wow the numbers look bad".
Sure OpenAI may well be bleeding money into the 2030s, or may even go bust completely depending on how pessimistic you are, but the analysis completely skips:
- They are building their own data centers, and will be less reliant on renting compute from Microsoft and Amazon over time.
- Once the AI bubble has subsided costs for GPU purchases and rentals will decrease significantly. Plus there will be more advancements and competition in the space (e.g. Google TPUs) and Nvidia will no longer be able to name their own price.
- We will write more efficient software for training and inference.
- Once user growth is tapped out OpenAI will no longer need to have the overly generous free tier that they do today. And if they decide to turn up the advertising faucet these users could bring in a ton more revenue than in the projection. Thinking that every AI company combined will capture only 2% of the total digital advertising market is ridiculous. AI apps are already challenging social media for scrolling time.
Basically, the entire space is evolving so rapidly that it's pointless to make a projection with the assumption that the landscape isn't going to change from here on.
I think you are right that the entire analysis is flawed. The Amazon and Microsoft "rental" deals have inflated price tags because of the circular financial arrangements between them and OpenAI, and because those future revenue streams can be used notionally to finance CapEx. All of the Stargate DC build is being done through for-profit SPVs, so the financials are murky, but building the infra gives them collateral for debt, and they are going to lease the compute to the highest bidder, so there is a whole scheme for getting out of the non-profit box, creating a self-perpetuating loop of borrowing to build, using what they build as collateral for more borrowing, raising additional revenue and hedging by leasing compute to 3rd parties, and then using the for-profit SPVs to cross-subsidize OpenAI proper. That plan has enormous risks of its own (can the leadership team of OpenAI effectively build a competitor in the hyperscale compute space?) but whatever happens, it won't just be straight line scaling their current deals with existing hyperscalers.
LLMs have high utility for coding. The PMF is so strong that even with just coding i feel they will see an ARPU expansion beyond conservative assumptions.
There are adjacancies in white collar work like financial analysis that they will go after. All these will capture high ARPU usage.
Consumer is not their only path to revenue but it is probably the easiest to model. The enterprise play to automate and accelerate some white collar workers is a clear target not reflected here.
The reason for this is that leverage is extremely expensive and punished in the current macro regime. OpenAI will lose money faster if they scale up. That's because the Fed can capitulate all it wants, but real interest rates and real yields won't move. The market is saying "pay me".
And all Google did was develop the world's most popular search engine, email host, web browser, ad network, video streaming site, mobile operating system and cloud office suite and deliver profits for 20 straight years.
The top two comments mention that capturing, at minimum, 2% of the digital advertising market seems low. I disagree. I see that as an enormous hill to climb.
The LLMs will create new content, but they aren't creating new business channels in the advertising industry. As an example even once Google achieved search domination they still didn't have this. They had purchase a lot of things to make that happen like Urchin, Adscape, DoubleClick, YouTube, and a lot more.
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[ 2.7 ms ] story [ 78.1 ms ] threadthis is super overblown. what their executive said was that eventually the scale of compute required is so large, that it requires not only investing in new DCs, but new fabs, power plants, etc, which can only happen if there is implicit government support to guarantee 10+ year investment horizons required for the lower level of capital investment. that is not controversial at all and has nothing to do with OpenAI specifically being too big to fail.
The article mostly focuses on ChatGPT uses, but hard to say if ChatGPT is going to be the main revenue driver. It could be! Also unclear if the underlying report is underconsidering the other products.
It also estimates that LLM companies will capture 2% of the digital advertising market, which seems kind of low to me. There will be challenges in capturing it and challenges with user trust, but it seems super promising because it will likely be harder to block and has a lot of intent context that should make it like search advertising++. And for context, search advertising is 40% of digital ad revenue.
Seems like the error bars have to be pretty big on these estimates.
I'm not super bullish on "AI" in general (despite, or maybe because of working in this space the last few years), but strongly agree that the advertising revenue that LLM providers will capture can be potentially huge.
Even if LLMs never deliver on their big technical promises, I know so many casual users of LLMs that basically have replaced their own thought process with "AI". But this is an insane opportunity for marketing/advertising that stands to be a much of a sea change in the space as Google was (if not more so).
People trust LLMs with tons of personal information, and then also trust it to advise them. Give this behavior a few more years to continue to normalize and product recommendations from AI will be as trusted as those from a close friends. This is the holy grail of marketing.
I was having dinner with some friends and one asked "Why doesn't Claude link to Amazon when recommending a book? Couldn't they make a ton in affiliate links?" My response was that I suspect Anthropic would rather pass on that easy revenue to build trust so that one day they can recommend and sell the book to you.
And, because everything about LLMs is closed and private, I suspect we won't even know when this is happening. There's a world where you ask an LLM for a recipe, it provides all the ingredients for your meal from paid sponsors, then schedules to have them delivered to your door bypassing Amazon all together.
All of this can be achieved with just adding layers on to what AI already is today.
This cannot all be about advertising. They are selling a global paradigm shift not a fraction of low conversion rate eyeballs. If they start claiming advertising is a big part of their revenue stream then we will know that AI has reached a dead end.
There is your multi-bn $ revenue stream.
Maybe users will employ LLMs to block ads? There's a problem in that local LLMs are less powerful and so would have a hard time blocking stealth ads crafted from a more powerful LLM, and would also add latency (remote LLMs add latency too, but the user may not want to pay double for that)
I think beyond the number of crazy assumptions (no Google taking market share in the consumer market?? only 2% of digital advertising expected to be captured by OpenAI?) it is hard to nail down which levers could move which might make this funding hole disappear.
I think people are severely underestimating ChatGPT as a way to make money other than subscriptions. I also think people are underestimating the branding power ChatGPT has already. All my friends have ChatGPT on their phone. None of them except me has Gemini or Claude app.
This doesn't account for OpenAI's other ambitions such as Sora app.
Hey Sam Altman or OpenAI employee, if you are reading this, I think you should buy the North American version of TikTok if the opportunity presents itself. The future of short videos will be heavily AI generated/assisted. Combine Tiktok's audience with your Sora tools and ChatGPT data and you got yourself a true Instagram competitor immediately. If the $14b sales price of US Tiktok is real, that's an absolute bargain in the grand scheme of things.
Do they use Google docs/sheets? Or even Google Search anywhere? Then they have Gemini integrated in some way
What is this saying? Is this sarcastic?
I don't know anybody with a Microsoft 365 subscription.
I suppose the cloud storage is nice, but you can do much better; Google gives you double that for the same price ($99/yr).
Nuh uh. I get 6TB of OneDrive for $100/yr*. Granted, it's across 6 accounts.
For $100, I get 2TB of Google One.
Edit: OK, so they upped it to $130/yr.
I don’t either, but the lesson to be learned is that you live in a bubble. Microsoft makes many millions of dollars a year off of those subscriptions. Just because the bubble of people you interact with doesn’t mean that those people don’t exist.
OK no that was a lie. I know one person that has a Microsoft 365 subscription. I hate it when he sends me word or outlook document links or whatever the hell. Just use Google docs, dude.
Also: Google One gives you 2 TB, MS 365 Family gives 6x1TB for roughly the same price (for a total of 6 seats). The packages differ in multiple ways, being different fit for different use cases.
Also note: I'm using Google docs at work, and while Word for one example has too many features, Google docs is lacking even on the basics like document styling (think custom paragraph styles), it is painfully inadequate for business use, lot of work is wasted on working its limitations around.
If their business isn't sustainable they should go bankrupt, and close shop.
Sure OpenAI may well be bleeding money into the 2030s, or may even go bust completely depending on how pessimistic you are, but the analysis completely skips:
- They are building their own data centers, and will be less reliant on renting compute from Microsoft and Amazon over time.
- Once the AI bubble has subsided costs for GPU purchases and rentals will decrease significantly. Plus there will be more advancements and competition in the space (e.g. Google TPUs) and Nvidia will no longer be able to name their own price.
- We will write more efficient software for training and inference.
- Once user growth is tapped out OpenAI will no longer need to have the overly generous free tier that they do today. And if they decide to turn up the advertising faucet these users could bring in a ton more revenue than in the projection. Thinking that every AI company combined will capture only 2% of the total digital advertising market is ridiculous. AI apps are already challenging social media for scrolling time.
Basically, the entire space is evolving so rapidly that it's pointless to make a projection with the assumption that the landscape isn't going to change from here on.
Hideous idea as it is, I fully expect they break even in 2026.
[0]: https://openai.com/index/chatgpt-shopping-research/
There are adjacancies in white collar work like financial analysis that they will go after. All these will capture high ARPU usage.
Consumer is not their only path to revenue but it is probably the easiest to model. The enterprise play to automate and accelerate some white collar workers is a clear target not reflected here.
The LLMs will create new content, but they aren't creating new business channels in the advertising industry. As an example even once Google achieved search domination they still didn't have this. They had purchase a lot of things to make that happen like Urchin, Adscape, DoubleClick, YouTube, and a lot more.