"OpenAI Is A Lot More Vulnerable Than You Think"

Microsoft may have overpaid for their stake in OpenAI but they have a lot of money.

From Big Technology, November 3:

All the press, money, and awards in the world won’t prevent OpenAI from the cold reality of competition.

It’s been a year of glossy profiles, breathless accolades, and funding billions for OpenAI, but the ChatGPT-maker is far more vulnerable than the popular narrative suggests. Amid a seemingly unstoppable ascent, it’s facing fierce competition, a rising open-source movement, and pressure to deliver hits in an unpredictable discipline. Surprisingly, its perch atop the AI field is less than rock solid. 

OpenAI’s weakness stems in part from its strength. It popularized generative AI by taking others’ innovations — like the transformer model — and building stellar products on top of them. But now that the entire world is cued into AI, it’ll be much more difficult to take advantage alone. The blueprint and the materials are out there, and competitors are catching up.

After a week of interviews with OpenAI’s customers, here’s a look at its vulnerabilities:

Model Commoditization 

OpenAI’s GPT-4 is still the best-performing large language model, but well-funded imitators are suddenly everywhere. Anthropic’s models are so promising it landed two billion-dollar-plus investments, from Amazon and Google, within a month of each other. Google’s Gemini model is coming and rumored to be on par with — or better than — GPT-4. Meta’s Llama2 is available and gaining momentum. There’s plenty of selection now. Smart AI companies are going shopping.

 

Margin Compression

The cost to use large language models will come down with multiple, comparable offerings hitting the market. “OpenAI has a very clear lead,” George Sivulka, founder of Hebbia AI, told me. “But others will undercut them in pricing or customizability, and the majority of value will not be accrued in the large language model layer.” Infrastructure companies like NVIDIA will cash in while model developers compete on price. That’s one reason OpenAI is so fixated on achieving artificial general intelligence. “Their bet is on reaching AGI that finds a better way to make money,” Sivulka said.

 

The Hits Business 

In an era of LLM commoditization, OpenAI will have to transform itself from being a company that builds on others’ breakthroughs to one that produces its own. “Software is the hits business as much as the movie or entertainment industry,” said Joel Wright, the CEO of Sinecure.ai and a former entertainment executive. “They’re definitely going to have to continue to push the envelope to make their products smarter and faster.” In the middle of 2023, OpenAI reportedly stopped work on a potential new model, Arrakis, after it fell short of expectations. The problem with the hits business is spending money doesn’t necessarily translate to results. It takes a bit of luck and skill, and it’s pretty unpredictable....

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