Comment by JCM9

Comment by JCM9 a day ago

8 replies

Fundamentally different business models.

Amazon had huge capital investments that got less painful as it scaled. Amazon also focuses on cash flow vs profit. Even early on it generated a lot of cash, it just reinvested that back into the business which meant it made a “loss” on paper.

OpenAI is very different. Their “capital” expense depreciation (model development) has a really ugly depreciation curve. It’s not like building a fulfillment network that you can use for decades. That’s not sustainable for much longer. They’re simply burning cash like there’s no tomorrow. Thats only being kept afloat by the AI bubble hype, which looks very close to bursting. Absent a quick change, this will get really ugly.

Fade_Dance a day ago

OpenAI is raising at 500 billion and has partnerships with all of the trillion dollar tech corporations. They simply aren't going to have trouble with working capital for their core business for the foreseeable future, even if AI dies down as a narrative. If the hype does die down, in many ways it makes their job easier (the ridiculous compensation numbers would go way down, development could happen at a more sane pace, and the whole industry would lean up). They're not even at the point where they're considering an IPO, which could raise tens of billions in an instant, even assuming AI valuations get decimated.

The exception is datacenter spend since that has a more severe and more real depreciation risk, but again, if the Coreweave of the world run into to hardship, it's the leading consolidators like OpenAI that usually clean up (monetizing their comparatively rich equity for the distressed players at firesale prices).

  • stackskipton a day ago

    Depends on raise terms but most raises are not 100% guaranteed. I was at a company that said, we have raised 100 Million in Series B (25 over 4 years) but Series B investors decided in year 2 of 4 year payout that it was over, cancelled remaining payouts and company folded. It was asked "Hey, you said we had 100 Million?" and come to find out, every year was an option.

    Alot of finances for non public company is funny numbers. It's based on numbers the company can point to but amount of asterisks in those numbers is mind-blowing.

Analemma_ a day ago

Not to mention nobody bothered chasing Amazon-- by the time potential competitors like Walmart realized what was up, it was way too late and Amazon had a 15-year head start. OpenAI had a head start with models for a bit, but now their models are basically as good (maybe a little better, maybe a little worse) than the ones from Anthropic and Google, so they can't stay still for a second. Not to mention switching costs are minimal: you just can't have much of a moat around a product which is fundamentally a "function (prompt: String): String", it can always be abstracted away, commoditized, and swapped out for a competitor.

  • robertjpayne 20 hours ago

    This right here. AI has no moat and none of these companies has a product that isn't easily replaced by another provider.

    Unless one of these companies really produces a leapfrog product or model that can't be replicated within a short timeframe I don't see how this changes.

    Most of OpenAI's users are freeloaders and if they turn off the free plan they're just going to divert those users to Google.

    • aurareturn 11 hours ago

      AI has no moat - yet here I'm been paying for ChatGPT Plus since the very start.

  • mike_hearn 10 hours ago

    Well, web search is also function(query: String): String in a sense, and that has one heck of a moat.

    • Analemma_ 4 hours ago

      Right, because just like the Amazon case, potential competitors didn't realize at the time what a threat it was, and so they gave Google a 15-year head start (Microsoft half-heartedly made "Live Search" circa 2007 and didn't really get at all serious about Bing until ~2010).

      That's very different from the world where everyone immediately realized what a threat Chat-GPT was and instantly began pouring billions into competitor products; if that had happened with search+adtech in 1998, I think Google would have had no moat and search would've been a commoditized "function (query: String): String" service.

  • Sateeshm 14 hours ago

    It's not just the head start, it's the network effect.