Glad you spotted that! Those two quoted claims do contradict each other, as stated. I’m surprised I had not noticed that.
but I’m not sure where that money goes.
The Information had a useful table on OpenAI’s projected 2024 costs. Linking to a screenshot here.
But I’m not sure why the article says that “every single paying customer” only increases the company’s burn rate given that they spend less money running the models than they get in revenue.
I’m not sure either why Ed Zitron wrote that. When I’m back on my laptop, I’ll look at older articles for any further reasoning.
Looking at the cost items in The Information’s table, revenue share with Microsoft ($700 million) and hosting ($400 million) definitely seem mostly variable with subscriptions. It’s harder to say for the sales & marketing ($300 million) and general administrative costs ($600 million).
Given that information, the revenue that OpenAI earns for itself would still be higher than just the cost of running the models and hosting (which we could call the “cost of running software”).
It’s hard to say though on the margin how much cost overall is added per normal-tier user added. Partly, it depends on how much more they use OpenAI’s tools than free users. But I guess you’d be more likely right than not that (if we exclude past training and research compute costs, and other fixed costs), that the overall revenue per normal-tier user added would be higher than the accompanying costs.
Now the article claims that OpenAI spent $9 billion in total
Note also that the $9 billion total cost amount seems understated in three ways:
the amortised research compute amount lags behind the recent higher compute costs for research.
the data costs (which I assume are not variable with user count) do not appear to price in possible compensation OpenAI will be ordered to pay for any past violations identified in ongoing lawsuits.
from an investor perspective, the $1.5 billion(?) worth in profit shares handed out are also a ‘cost’.
Glad you spotted that! Those two quoted claims do contradict each other, as stated. I’m surprised I had not noticed that.
The Information had a useful table on OpenAI’s projected 2024 costs. Linking to a screenshot here.
I’m not sure either why Ed Zitron wrote that. When I’m back on my laptop, I’ll look at older articles for any further reasoning.
Looking at the cost items in The Information’s table, revenue share with Microsoft ($700 million) and hosting ($400 million) definitely seem mostly variable with subscriptions. It’s harder to say for the sales & marketing ($300 million) and general administrative costs ($600 million).
Given that information, the revenue that OpenAI earns for itself would still be higher than just the cost of running the models and hosting (which we could call the “cost of running software”).
It’s hard to say though on the margin how much cost overall is added per normal-tier user added. Partly, it depends on how much more they use OpenAI’s tools than free users. But I guess you’d be more likely right than not that (if we exclude past training and research compute costs, and other fixed costs), that the overall revenue per normal-tier user added would be higher than the accompanying costs.
Note also that the $9 billion total cost amount seems understated in three ways:
the amortised research compute amount lags behind the recent higher compute costs for research.
the data costs (which I assume are not variable with user count) do not appear to price in possible compensation OpenAI will be ordered to pay for any past violations identified in ongoing lawsuits.
from an investor perspective, the $1.5 billion(?) worth in profit shares handed out are also a ‘cost’.