Comment by simonw

Free usage usually goes in sales and marketing. It's effectively a cost of acquiring a customer. This also means it is considered an operating expense rather than a cost of goods sold and doesn't impact your gross margin.

Compute in R&D will be only training and development. Compute for inference will go under COGS. COGS is not reported here but can probably be, um, inferred by filling in the gaps on the income statement.

(Source: I run an inference company.)

Marketing != advertising. Although this budget probably does include some traditional advertising. It is most likely about building the brand and brand awareness, as well as partnerships etc. I would imagine the sales team is probably quite big, and host all kinds of events. But I would say a big chunk of this "sales and marketing" budget goes into lobbying and government relations. And they are winning big time on that front. So it is money well spent from their perspective (although not from ours). This is all just an educated guess from my experience with budgets from much smaller companies.

We gave ChatGPT advertising on bus-stops here in the UK.

Two people in a cafe having a meet-up, they are both happy, one is holding a phone and they are both looking at it.

And it has a big ChatGPT logo in the top right corner of the advertisement - transparent just the black logo with ChatGPT written underneath.

That's it. No text or anything telling you what the product is or does. Just it will make you happy during conversations with friends somehow.

Stop R&D and the competition is at parity with 10x cheaper models in 3-6 months.

Stop training and your code model generates tech debt after 3-6 month

> $2 billion on sales and marketing - anyone got any idea what this is?

Not sure where/how I read it, but remember coming across articles stating OpenAI has some agreements with schools, universities and even the US government. The cost of making those happen would probably go into "sales & marketing".

> $2 billion on sales and marketing - anyone got any idea what this is?

enterprise sales are expensive. And selling to the US government is on a very different level.

I see multiple banner ads promoting ChatGPT on my way to work. (India)

you see content about openai everywhere, they spent 2b on marketing, you're in the right places you just are used to seeing things labeled ads.

you remember everyone freaking out about gpt5 when it came out only for it to be a bust once people got their hands on it? thats what paid media looks like in the new world.

> $2 billion on sales and marketing - anyone got any idea what this is?

I used to follow OpenAI on Instagram, all their posts were reposts from paid influencers making videos on "How to X with ChatGPT." Most videos were redundant, but I guess there are still billions of people that the product has yet to reach.

I have seen a tonnes of Chat GPT ads on Reddit. Usually with image generation of a dog in Japanese cartoon style.

Free users typically fall into sales and marketing. The idea is that if they cut off the entire free tier, they would have still made the same revenue off of paying customers by spending $X on inference and not counting the inference spend on free users.

> ? I don't remember seeing many ads for ChatGPT

FWIW I got spammed non-stop with chatGPT adverts on reddit.

I've seen some OpenAI ads on Italian tv and they made no sense to me, they tried hard to be apple like, but realistically nobody knew what they were about.

I'm pretty sure I saw some ChatGPT ads on Duolingo. Also, never forget that the regular dude do not use ad blockers. The tech community often doesn't realize how polluted the Internet/Mobile apps are.

OpenAI keeps spamming me with ads on instagram and reddit.

Pretty sure I'm not a cheap audience to target ads at, for multiple reasons.

Speculating but they pay to be integrated as the default ai integration in various places the same way google has paid to be the default search engine on things like the iPhone?

I’ve seen some on electronic street-level signs in Atlanta when I visited. So there is some genuine advertising.

Inference etc should go in this bucket: "Operating losses reached US$7.8 billion"

That also includes their office and their lawyers etc , so hard to estimate without more info.

Hard to know where it is in this breakdown but I would expect them to have the proper breakdowns. We know on the inference side it’s profitable but not to what scale.

Sales people out in the field selling to enterprises + free credits to get people hooked.

> $2 billion on sales and marketing

Probably an accounting trick to account for non-paying-customers or the week of “free” cursor GPT-5 use.

I’m also curious about your last question. Cost of goods sold would not fall into R&D or sales as far as I know.

So curious, in fact, that I asked Gemini to reconstruct their income statement from the info in this article :)

There seems to be an assumption that the 20% payment to MS is the cost of compute for inference. I would bet that’s at a significant discount - but who knows how much…

Line Item | Amount (USD) | Calculation / Note

Revenue $4.3 Billion Given.

Cost of Revenue (COGS) ($0.86 Billion) Assumed to be the 20% of revenue paid to Microsoft ($4.3B * 0.20) for compute/cloud services to run inference.

Gross Profit $3.44 Billion Revenue - Cost of Revenue. This 80% gross margin is strong, typical of a software-like business.

Operating Expenses

Research & Development ($6.7 Billion) Given. This is the largest expense, focused on training new models.

Sales & Ads ($2.0 Billion) Given. Reflects an aggressive push for customer acquisition.

Stock-Based Compensation ($2.5 Billion) Given. A non-cash expense for employee equity.

General & Administrative ($0.04 Billion) Implied figure to balance the reported operating loss.

Total Operating Expenses ($11.24 Billion) Sum of all operating expenses.

Operating Loss ($7.8 Billion) Confirmed. Gross Profit - Total Operating Expenses.

Other (Non-Operating) Income / Expenses ($5.7 Billion) Calculated as Net Loss - Operating Loss. This is primarily the non-cash loss from the "remeasurement of convertible interest rights."

Net Loss ($13.5 Billion) Given. The final "bottom line" loss.