OpenAI Is Not A Real Company

0:00This is an iHeart Podcast.

0:30Thomson Reuters and specialized bikes have since they upgraded to the next generation of the cloud. Oracle Cloud Infrastructure. OCI is the blazing fast platform for your infrastructure, database, application development, and AI needs, where you can run any workload in a high availability, consistently high performance environment, and spend less than you would with other clouds. How is it faster? OCI's block storage gives you more operations per second. Cheaper? Better? OCI costs up to 50 % less for computing, 70 % less for storage, and 80 % less for networking. Better? In test after test, OCI customers report lower latency and higher bandwidth versus other clouds.

1:12This is the cloud built for AI and all your biggest workloads. Right now, with zero commitment, try OCI for free. Head to oracle.com slash strategic. That's oracle.com slash strategic. This week on a very special episode of Health Discovered, we're taking a closer look at a condition that affects hundreds of thousands of men each year, prostate cancer. I first found out about my cancer on my birthday at the age of 45. Found out my cancer has spread to my pelvic bone. And from there, life just changed. About one in eight men will be diagnosed with prostate cancer during their lifetime, and the risk increases with age.

1:58Anything with cancer, you just think death sentence. And the only thing I could think about was, who's going to take care of my family? You have to go out there and build your support system. You've got to build your team. In this episode, we'll explore the science behind detection, along with the practical steps men can take to protect their health. Listen to Health Discovered on America's number one podcast network, iHeart. Open your free iHeart app, search Health Discovered, and start listening.

2:31Brought to you by Progressive Insurance. Do you ever think about switching insurance companies to see if you could save some cash? Progressive makes it easy. Just drop in some details about yourself and see if you're eligible to save money when you bundle your home and auto policies. The process only takes minutes and it could mean hundreds more in your pocket. Visit Progressive.com after this episode to see if you could save. Progressive Casualty Insurance Company and Affiliates. Potential savings will vary. Not available in all states. Call Zone Media Soul of an angel, body of a devil, chosen by God and perfected by science.

3:08This is Better Offline and I'm your host, Ed Zitron.

3:22now we're working on my newsletter last week i was chatting with my friend friend of the show casey kagawa about generative ai and we kept coming back to one thought where's the money where is it no really where is the money where is the money that this supposedly revolutionary world-changing industry is making and of course will make in the future and the answer is simple After hours of grinding through earnings, of grinding through media articles, of grinding through all sorts of things, I just don't believe it really exists. It's real, but it's small. Generative AI lacks the basic unit economics, product market fit, or market penetration associated with any meaningful software boom.

4:01And outside of open AI, the industry may be pathetically, hopelessly small, all while providing few meaningful business returns and constantly losing money. I'm going to be pretty straightforward with everything I say in this two-parter, because the numbers and the facts and my hypotheses are pretty fucking damning of both the generative AI industry and its associated boosters. You're going to get this episode, then there's going to be a monologue about something else or something related, I really haven't got to it yet, and then a second part, which I'm recording immediately after this one. A little behind the curtain there for you.

4:31Anyway, in reporting this analysis, I've done everything I can to try pushback against my own work, and I've sought evidence to counter the things that I've seen, like the revenue and the business models of these companies. Yet, in doing so, I've only become more convinced of the flimsiness of generative AI and the associated industry, and the likelihood of this bubble bursting in a way that kneecaps tech valuations for a prolonged period, or worse, hits the major stock market. Now, I really had originally written a far more jocular and outraged and pissy script, but while I was writing it, I realized I really had to be blunt, because what I'm describing is a systemic failure.

5:07Venture capital has propped up OpenAI and Anthropic, two companies that have burned a combined$10.5 billion in 2024, and that number is set to double or more in 2025. The tech media has allowed Sam Altman to twist them to validate completely fictional ideas as a means of propping up this unprofitable, environmentally destructive software company, and big tech has become so disconnected from reality that it is incapable of seeing how little actual returns there are in generative AI. And they're failing, by the way. As I walk you through in these episodes, the generative AI industry is very small, with the consumer market of the entire American generative AI industry outside of ChatGPT barely cracking 100 million monthly active users, which puts them below a lot of free-to-play games that you get on your iPhone.

5:55Hyperscalers have already spent hundreds of billions of dollars in capital expenditures for an AI industry that has the combined monthly active users of a free-to-play mobile game. I really must repeat myself. It's insane. But unlike most mobile games, generative AI doesn't really make any money. And for those of you wondering if selling access to AI models is the solution, it's important to know that OpenAI, the market leader in generative AI, made less than a billion dollars on API calls in 2024. And that's when people plug their models in, for those of you who don't understand. So it's the difference between, you know, load up the ChatGPT app or someone has an AI, a generative AI like ChatGPT plugged into it.

6:35Now, Microsoft pays OpenAI a revenue share of 20 % on them selling OpenAI's models, so$200 million. So this means that Microsoft likely only makes a billion dollars in revenue from API calls themselves. This is a pathetic amount of money and suggests there really isn't significant demand at all, or they're not charging enough. Neither of these are great. and honestly i'm sick and tired of hearing people prop up this fucking industry in these episodes i will explain as calmly as possible how the generative ai industry barely exists outside of open ai and honestly in writing this i've become completely disgusted at silicon valley at the waste why is nobody talking about the revenues why is nobody sharing real user numbers other than open ai well i believe it's because there isn't that much money and there certainly aren't that many users.

7:23Nobody is making a profit from this other than consultants, and that's because this is a hype-driven movement. What you see on TV and in the newspaper is not the advent of a revolutionary piece of technology. It's a cynical marketing campaign for one company, OpenAI. I need you to understand how precarious this all is. So much money has been wasted propping up an industry that only burns money that does not have mass market appeal. ChatGPT is not significant enough or useful enough or meaningful enough to justify spending$9 billion to lose$5 billion. And yes, those are the raw economics of OpenAI.

8:03Now you may say, well, Uber lost a lot of money, didn't it, Edward? Guess what? Uber lost about$6.2 billion in one year, and that was in 2020 when they couldn't run their bloody service. Uber is a very different company. I will gladly, if you email me, I will explain this to you, but Uber is not a comparison. There is no comparison to what OpenAI is doing, what Anthropic is doing. I sound crazed as ever, but you're going to understand why when I'm done. I am deeply worried about this industry and I need you to know why. But in this first episode, I'm going to focus on one specific thing, and that's the capitalist delusion known as OpenAI, a company that encompasses almost all of the traffic, funding, and attention in generative AI.

8:44And I believe they die without a constant flow of venture capital and hyperscale welfare. And I actually don't know why I said I believe that. They will. They cannot survive without that money. But okay, let's take a second. Let's talk about OpenAI's unit economics. Putting aside the hype, the blaster, OpenAI, as with all generative AI model developers, loses money on every single prompt and output. Its products do not scale like traditional software, in that the more users it gets, the more expensive its services are to run because its models are so compute-intensive. For example, ChatGPT having 400 million weekly active users is not the same thing as a traditional app like Instagram or Facebook having that many users, or indeed Uber.

9:27The cost of serving a regular user of an app like Instagram is significantly smaller because these are effectively websites with connecting APIs, images, videos, and user interactions. These platforms aren't innately compute-heavy, and so you don't need to have the same level of infrastructure to support the same amount of people. Conversely, generative AI requires expensive to buy and expensive to run and expensive to maintain graphics processing units, GPUs, both for inference and training the models themselves. These GPUs must be run at full tilt for both inference and training, which shortens their lifespan while also consuming ungodly amounts of energy.

10:03And by the way, inference is just the thing that happens when you tell ChatGPT something, think it infers the meaning of the prompt and the training is what they do when they throw all the training data to make the model smart not really though and by the way surrounding the gpu in there isn't like the gpu is just kind of hang out there's the rest of a computer which is usually highly specced and incredibly difficult to call and thus very very expensive these generative ai models also require endless amounts of training data and supplies of that training data have been running out for a long time while synthetic data might bridge some of the gap there are likely diminishing returns due to the sheer amount of data necessary to make a large-large-quitch model even larger, as much as more than four times the size of the internet.

10:45This is insane. There is not enough data, and it already kind of sucks, and it's not getting better. These companies also must spend hundreds of millions of dollars on salaries to attract and retain AI talent, as much as$1.5 billion a year in OpenAI's case, and that's before stock-based compensation. In 2016, Microsoft claimed that top AI talent could cost as much as an NFL quarterback to hire, and that sum has likely only increased since then given the generative AI frenzy and the fact they're overpaying quarterbacks. As an aside, one analyst told the Wall Street Journal that companies running generative AI models could, and I quote, be utilising half their capital expenditures because all of these things could break down.

11:26That's really bad. These costs are not a burden on OpenAI or Anthropic, but they absolutely are on Microsoft, Google, and Amazon. This shit's crazy. Anyway, as a result of the costs of running these services, a free user of ChatGPT is a cost burden on OpenAI, as is every single free customer of Google's Gemini, Anthropic's Claude, Perplexity, or any other generative AI company. Said costs are also so severe that even paying customers lose these companies' money. Even the most successful company in the business appears to have no way to stop burning capital. And as I'll explain, there's only really one real company in the industry, OpenAI.

12:05And OpenAI is not a real business. But let's start with a really, really important fact. If you forget everything I say, I want you to remember this. OpenAI spent $9 billion to make just under$4 billion in 2024. And the entirety of their revenue, that's about$4 billion, is spent on compute,$2 billion to run models, and$3 billion to train them. That is completely and utterly fucking insane. That is bonkers. That is crazy. That is completely nuts. This is not a real company. It is insane we're allowing this. Everyone should be screaming this at everyone. We live in an alternate reality where this is acceptable.

12:43There has been no precedent for this, not Amazon Web Services, not Uber, not anyone. No one has done this, and it's sickening and wasteful that we continue to. And in the past, I've repeatedly said that OpenAI lost$5 billion after revenue. Now, that is true, by the way. That is completely true. They made money and they lost money, but ended up losing$5 billion either way. However, I really just, I can't in good conscience suggest that OpenAI only spent$5 billion. It's time to be honest about these numbers. While it's fair to say that their net losses are$5 billion, they spent$9 billion to lose$5 billion.

13:26Parking shouldn't slow you down. ParkWiz gives every driver a shortcut. Book ahead, save up to 50 % and skip the hassle of circling the block. Park smarter, park faster. ParkWiz. Download the ParkWiz app today and save every time you park. So I've shopped with quints before they were an advertiser and after they became one. And then again, before I had to record this ad, I really like them. My green over shirt in particular looks great. I use it like a jacket. It's breathable and comfortable and hangs on my body nicely. I get a lot of compliments. I liked it so much I got it in all the different colors, along with one of their corduroy ones, which I think I pull off.

14:00And really, that's the only person that matters. I also really love their linen shirts, too. They're comfortable, they're breathable, and they look nice. Get a lot of compliments there, too. I have a few of them. Love their rust-colored ones, as well. And in general, I really like quints. The shirts fit nicely, and the rest of their clothes do, too. They ship quickly. They look good. They're high quality, and they partner directly with ethical factories and skip the middleman. So you get top-tier fabrics and craftsmanship at half the price of similar brands. And I'm probably going to buy more from them very, very soon.

14:28Keep it classic and cool this fall with long-lasting staples from Quince. Go to quince.com slash better for free shipping on your order and 365-day returns. That's q-u-i-n-c-e dot com slash better. Free shipping and 365-day returns. Quince.com slash better. This week on a very special episode of Health Discovered, we're taking a closer look at a condition that affects hundreds of thousands of men each year, prostate cancer. I first found out about my cancer on my birthday at the age of 45. Found out my cancer has spread to my pelvic bone. And from there, life just changed. About one in eight men will be diagnosed with prostate cancer during their lifetime, and the risk increases with age.

15:19Anything with cancer, you just think death sentence. And the only thing I could think about was, who's going to take care of my family? You have to go out there and build your support system. You got to build your team. In this episode, we'll explore the science behind detection, along with the practical steps men can take to protect their health. Listen to Health Discovered on America's number one podcast network, iHeart. Open your free iHeart app, search Health Discovered, and start listening.

15:52Hey, it's Ryan Reynolds here for Mint Mobile. Now, I was looking for fun ways to tell you that Mint's offer of unlimited premium wireless for$15 a month is back. So I thought it would be fun if we made$15 bills. But it turns out that's very illegal. So there goes my big idea for the commercial. Give it a try at mintmobile.com slash switch. A front payment of$45 for a three-month plan equivalent to$15 per month required. New customer offer for first three months only. Speed slow after 35 gigabytes if network's busy. Taxes and fees extra. See mintmobile.com.

16:26Let's really get down into the nitty-gritty of these numbers. So as discussed previously, according to the reporting by the information, OpenAI's revenue was likely somewhere in the region of$4 billion in 2024. Their burn rate, according to the information, was$5 billion after revenue in 2024, excluding stock-based compensation, which OpenAI, like other startups, uses as a means of compensation on top of cash. Nevertheless, the more it gives away, the less it has for capital raises. And these are technically costs, though they're not real money. Unless there's a liquidity event, but you don't need to worry about that.

16:58To put this in blunt terms, based on reporting by the information, and I'm repeating myself here, but I really need you to remember this, running OpenAI cost$9 billion in 2024. The cost of the compute to train models alone,$3 billion, dollars, obliterates the entirety of their subscription revenue, which was about three billion dollars, by the way. And the compute from running models, two billion dollars, takes the rest and then some. They actually end up losing an extra billion on top of that. Sam Altman's net worth is a billion dollars, by the way. Casey Kagawa has now used this as the Altman index, so it's like, you've lost one Sam Altman.

17:36That's a billion dollars. But just to be clear, it doesn't just cost more to run OpenAI than they make. It costs them a billion dollars more than the entirety of their revenue to run the software they sell before any other costs. Why are we not more concerned about this company? Now, something else to note is that OpenAI also spends an alarming amount of money on salaries, over$700 million in 2024 before you consider that compensation from stock, a number that will also have to increase because OpenAI is growing, which means hiring as many people as possible, and they're paying through the nose for them.

18:10But let's talk about how OpenAI makes money. OpenAI sells access to its models via its API and selling premium subscriptions to ChatGPT. The majority of its revenue, over 70%, comes from subscriptions to premium versions of ChatGPT. The information also reported that OpenAI now has 15.5 million paying customers, though it's unclear what level of the service they're paying for, or how sticky these customers are, as in how lucky they are to stick around, or the cost of acquiring these customers, or really any other metric to tell us how valuable these customers are to the bottom line. Nevertheless, OpenAI loses money on every single paying customer, just like its free users.

18:49Increasing paid subscribers to OpenAI's services somehow increases OpenAI's burn rate. This is not a real company. Now, the New York Times reports that OpenAI projects it will make$11.6 billion in 2025, and assuming that OpenAI burns at the same rate it did in 2024, spending$2.25 to make$1, OpenAI is on course to burn over$26 billion in 2025 for a loss of$14.4 billion. Who knows what their actual costs will be? Now, you've probably heard about SoftBank coming in. SoftBank's going to feed them money and SoftBank said they're going to spend money on this, that and the other. That round has not closed yet.

19:26Masayoshi-san, a complete fucking idiot who's lost$30-odd billion for SoftBank, the Japanese mega conglomerate, he's dedicating billions of dollars of revenue to buying OpenAI services. Unless this is a straight up trade where he's just sending money before the services come in, I don't know if it happens. And I'm going to get into things like agents later, but the information reported that OpenAI expects to make$3 billion in revenue from agents. By the end of this episode, you're going to realize how fucking stupid that sounds. We'll get there later. It's also important to note that OpenAI's costs are partially subsidized by its relationship with Microsoft, which provides cloud compute credits for its Azure cloud service.

20:05Not super technical, it's just when they host people's software and files and such, and the compute to run these models. And they also offer this at a steep, steep discount to OpenAI. Or put another way, it's like OpenAI got paid with air miles, but the airline lowered the redemption cost of booking a flight with those air miles, allowing it to take more flights than any other person with the equivalent amount of points. Until recently, OpenAI exclusively used Microsoft Azure services to train, host, and run its models, but recent changes to its deal means that OpenAI is now working with Oracle to build out further data centers to train, host, and run its models.

20:39It's unclear whether this partnership will work in the same way as the Microsoft deal, with OpenAI provided credits and discounts like before. If not, OpenAI's operating costs will only go up. per previous reporting from the information open ai pays just over 25 of the cost of azure's gpu compute as part of their deal with microsoft and that's about a dollar 30 per gpu per hour versus the regular azure cost of three dollars and forty cents to four dollars an hour i know that this sounds really technical but in in very short they're getting a sweet deal from microsoft and if anything happens to that they're completely fucked they're fucked anyway they don't have They're burning billions of dollars.

21:16It's insane. But let's talk about user numbers, because OpenAI has quite a few. They recently announced that they have 400 million weekly active users. Now, weekly active users is a wanky number and a very strange one for a company like this. OpenAI may pretend to be a consumer company, but the majority of their revenue comes from monthly subscriptions, making them kind of a cloud software company. Classically, cloud software companies report monthly active users. That way you can, I don't know, compare one number, which is the amount of active users you have, with the paid users you have, and then say, oh, that's a good business.

21:50That's a good business right there, man. Guess what? OpenAI isn't giving their monthly active users. Don't worry, I might have estimated it. When I asked OpenAI to define what a weekly active user was, it responded by pointing me to a tweet by Chief Operating Officer Brad Lightcap that said, ChatGPT recently crossed 400 million weekly active users. We feel very fortunate to serve 5 % of the world every week. What a fucking liar. It's extremely questionable that OpenAI refuses to define this core metric, by the way. And without a definition, in my opinion, there is no way to assume anything other than OpenAI is actively gaming its numbers.

22:23Now, there's likely two reasons they focus on weekly active users. One, as described, these numbers are easy to game. You can choose any seven-day period. And also, the majority of OpenAI's revenue comes from paid subscriptions to ChatGPT. And that latter point is crucial because it suggests OpenAI is not doing anywhere near as well as it seems based on the very basic metrics used to measure the success of a software product. The information reported on January 31st that OpenAI, like I mentioned, had 15.5 million monthly paying subscribers, and they added in this piece that this was less than a 5 % conversion rate of OpenAI's weekly active users.

22:59A statement that's kind of like dividing the number 52 by the letter A. this is not an honest or reasonable way to evaluate the success of chat gpt's still unprofitable software business because the actual metric like i mentioned would have been to divide paying subscribers by monthly active users or the other way around i guess a number that would be considerably higher than 400 million and the reason they don't want you to do that by the way is because you would divide them and see that they have a piss poor conversion rate good conversion rate is way higher than five percent by the way and theirs is definitely lower but don't worry i'm sneaky little shit, so I went and looked some stuff up and I talked to some people.

23:34Based on data from the market intelligence firm Sensor Tower, OpenAI's ChatGPT app on Android and iOS is estimated to have more than 339 million monthly active users, and based on traffic data from market intelligence company SimilarWeb, ChatGPT.com had 246 million unique monthly visitors, and these were in January 2025. There's likely some crossover with people using both the mobile and web interfaces, though how big that group is is kind of hard to tell and remains uncertain. Though every single person that visits chatgpt.com might not become a user, it's safe to assume that chatgpt's monthly active users are somewhere in the region of 500 to 600 million.

24:13That's good, right? Its actual users are higher than officially claimed, right? That's good? No, it's bad. First of all, each user that uses chatgpt for free is a drain on the company, whether they're free or not honestly but either way their free ones definitely are it would also suggest that the real conversion rate is somewhere in the neighborhood of 2.583 percent from free to paid users on chat gpt which is astonishingly bad and and it's a fact that's made worse by the fact that every single user regardless of whether they pay or not loses the money either way and while it's quite common for silicon valley companies to play fast and loose with metrics this particular one is well it's deeply concerning and i hypothesize that open ai is choosing to go with weekly versus monthly active users in an intentional attempt to avoid people calculating the conversion rate of its subscription products.