How Does OpenAI Make Money? Revenue Streams Beyond ChatGPT

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OpenAI has been making waves in the field of artificial intelligence (AI), particularly since it launched ChatGPT in November 2022, which became the fastest-growing app in history.

It has also already attracted its share of controversy – with the November 2023 ouster of co-founder and CEO Sam Altman before he was quickly returned to leadership, as well as a number of lawsuits filed against the company.

How much is OpenAI worth? The company is estimated to generate more than $1 billion in annual revenue – far ahead of previous estimates that it would reach $200 million. Calculations by The Information in 2023 suggested that the company was generating more than $80 million each month following the launch of ChatGPT, compared to just $28 million in 2022. Data from CB Insights showed that OpenAI’s revenue in 2023 accounted for $2 billion.

As the company continues to evolve and predictions for the impact of generative AI on the way we live and work become more significant, the company’s financial strategies and revenue sources are increasingly under the spotlight.

All that raises the question: how much money does OpenAI make?

In this article, we look at OpenAI’s business model, revenue streams, and future growth plans.

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Key Takeaways

  • OpenAI generates an estimated $1 billion in annual revenue through licensing fees, subscriptions, and investments.
  • ChatGPT, its popular chatbot, is a significant contributor to its income.
  • Partnerships and collaborations play a crucial role in OpenAI’s financial success.
  • Despite controversies and criticisms, OpenAi’s plans for future growth aim to further solidify its position as a leader in AI research and development.

What Does OpenAI Do?

The privately owned company was founded in December 2015 by a group of influential tech entrepreneurs, including Elon Musk, Sam Altman, Greg Brockman, Ilya Sutskever, John Schulman, and Wojciech Zaremba. It was established with the aim of ensuring that artificial general intelligence (AGI) — which refers to AI systems that are generally smarter than humans — “benefits all of humanity, which means both building safe and beneficial AGI and helping create broadly distributed benefits,” according to its website.

OpenAI operates as a research and development such as universities and other research institutions focused on open-source software and sharing its findings with collaborators as well as the public.

The company’s team of AI researchers and engineers are working on new AI technology and improving existing technology. Its application programming interface (API) service allows developers to access its AI models and integrate them into their own application development.

To achieve its goal of achieving safe and transparent AGI, OpenAI is actively developing a number of technologies, including the ChatGPT chatbot and the generative pre-trained transformer (GPT) language models that power its conversational responses and reinforcement learning algorithms, as well as the image generation models that power its Dall-E text-to-image tool and audio transcription tools like Whisper.

OpenAI’s research work also includes the development of robotics that incorporate its language models.

OpenAI’s Business Model

OpenAI was initially founded as a nonprofit organization that relied on donations of approximately $130.5 million to finance its research and development. The nonprofit published its research and maintained open-source projects.

However, the company reorganized into a limited partner (LP) structure in 2019. It essentially adopted a hybrid model that combines nonprofit and for-profit elements. A new for-profit subsidiary was formed, which is capable of issuing equity and hiring talent. Employees working on for-profit initiatives transitioned to employment under the subsidiary.

This transition allowed OpenAI to accept venture capital financing while still being overseen by the nonprofit organization, combining its cutting-edge research with commercial applications such as ChatGPT subscriptions that aim to make AI technology accessible at affordable prices.

The for-profit subsidiary is legally bound to pursue the mission of the nonprofit parent organization. Profits are capped at 100 times any investment, and the nonprofit’s board of directors continues to oversee all OpenAI activities.

OpenAI's Structure

Unique Approach to AI

OpenAI’s research-first approach and commitment to open-source development set it apart from other companies that are developing proprietary AI models and applications.

The company aims to foster collaboration, knowledge sharing, and innovation in the development of AI by sharing its research findings and maintaining open-source projects. It actively collaborates with other computer science research, ethics, and policy institutions to help create a global AI community that is equipped to address the challenges and implications of AGI.

OpenAI actively seeks to form partnerships with industry leaders and organizations that may compete in some way with its commercial interests but share its vision for beneficial AGI. This allows the company to leverage its expertise and resources to help accelerate the development of AGI.

How Does OpenAI Make Money?

OpenAI generates revenue through a combination of licensing its products and services to other companies, customer subscriptions, partnerships and collaborations, and investments.

OpenAI’s Revenue Model

Licensing

The majority of the company’s revenue comes from licensing fees for its AI models and products. It prices access to its language models and ChatGPT based on the use of tokens, which provide access to a specific number of generated words.

How does OpenAI make money from ChatGPT?

As of April 2024, access to ChatGPT-4 costs $30 per 1 million tokens, or 750 words, while output costs $60 for 1 million tokens. Output from ChatGPT-3.5 Turbo cost $1.50 per 1 million tokens.

Meanwhile, access to offerings such as Dall-E or Whisper was charged on a per-unit basis, i.e., $0.016 to $0.12 per image or $0.006 per minute of transcribed speech.

OpenAI also generates licensing revenue through its partnerships and collaborations with other organizations.

Its most well-known partnership is with Microsoft (MSFT), which reportedly invested $10 billion in the company in 2023 to bring its total to $13 billion. Through the partnership, OpenAI can tap into the tech giant’s extensive customer base to sell enterprises API access to its AI models, as well as selling access to companies and developers directly.

Microsoft uses OpenAI technology in the Copilot tool for its Bing search engine. In the first nine months following its launch, ChatGPT was adopted by teams in over 80% of Fortune 500 companies, the company stated in an August 2023 blog post. These included companies such as Block, Canva, Carlyle, The Estée Lauder Companies, PwC, and Zapier.

Subscriptions

To further increase its ChatGPT revenue, OpenAI has introduced a premium version of the chatbot, ChatGPT Plus, for $20 per month, providing subscribers preferential access.

Free users still receive access to ChatGPT, but this is to the previous version (e.g., 3.5 rather than 4.0), which is prone to downtime when demand to access the chatbot is especially high.

Offering a free version enables the company to collect user feedback and new training data to improve its language models.

Investments

OpenAI receives funds from various venture capital investments. The company has raised a total of $13.5 billion in funding over ten rounds, the latest of which was in February 2024, according to CB Insights data. Investors include Thrive Capital, Founders Fund, Arrowshare Ventures, angel investor Thomas Witt, and E1 Ventures.

OpenAI also invests in AI-based startups through its $100 million OpenAI Startup Fund, created in May 2021. The company offers consulting services and helps commercialize products.

Key Highlights from OpenAI’s Financials

  • OpenAI has raised $13.5 billion over 10 rounds.
  • OpenAI’s latest funding round was a Secondary Market – III on February 16, 2024.
  • OpenAI’s valuation in April 2023 was $27,000 – $29,000 million.
  • OpenAI’s 2023 revenue was $2 billion.

Sustainability & Profitability Approach

OpenAI’s sustainability strategy is two-fold. It aims to allow the company to maintain a sustainable financial position through careful financial planning and resource management so that it can navigate any uncertainties and challenges in the long-term development of AGI.

It also aims to generate revenue from endeavors that contribute to the advancement of safe AGI, taking into account its potential future impact on society. The organization states that it recognizes that a sustainable business model must address the ethical implications of AGI through research and advocacy.

OpenAI’s hybrid structure is designed to allow it to balance its pursuit of innovative research with a focus on profitability from diverse revenue streams.

Is OpenAI profitable? While the company has generated an estimated $2 billion in revenue in 2023, it has yet to turn a profit.

It reportedly lost $540 million in developing ChatGPT-4, and in December 2022, Altman described the computing costs of running the GPT as “eye-watering.”

If the company does achieve profitability, its deal with Microsoft means the tech firm will first recoup its investment from a 75% share of the profits and will subsequently receive a 49% share up to a profit of $92 billion.

In the meantime, OpenAI’s net worth does not contribute to Altman’s wealth, as he has stated he does not own equity in the company.

Future Growth Plans

Led by an ambitious leadership team, OpenAI is poised to continue its aggressive expansion, with plans to scale up its research efforts, deepen its strategic partnerships, and expand its product range to explore new routes for commercialization.

Investments in talent and infrastructure will further drive growth. The company was reported to be in early talks in December 2023 to raise fresh funding that would value the company at $100 billion, up from a valuation of $86 billion based on a separate investment completed in January.

Altman has also sought funding of as much as $7 billion to invest in semiconductor infrastructure to support the compute-hungry AI industry.

Controversies, Criticism & Litigations

While OpenAI’s work has garnered widespread acclaim, it has also faced scrutiny and controversy, particularly regarding its commitment to issues of transparency, bias, and intellectual property rights, given its increasing focus on commercialization and its use of public information from the Internet without the express consent of the content creators.

The company faces criticism over its business practices, ethical considerations, and the potential misuse of AI technology.

News organizations and authors have filed copyright infringement lawsuits against OpenAI and Microsoft, citing plagiarism in their work:

OpenAI is also the subject of non-copyright-related lawsuits filed in 2023 and 2024 that allege privacy violations, unfair and deceptive business practices, negligence, unjust enrichment, and larceny.

The sudden ouster of Sam Altman and Greg Brockman from the company and his subsequent return orchestrated by Microsoft in a matter of days raised questions about how much this was motivated by concerns among the other board members about the company’s approach to AI safety under their leadership.

Co-founder Elon Musk, who is no longer affiliated with OpenAI, filed a lawsuit in February 2024 against Altman, Brockman, and the company, claiming that Microsoft’s access to ChatGPT-4, released in March 2023, and the company’s involvement in restoring Altman and Brockman to the company following their firings “constitute flagrant breaches of the Founding Agreement, which Defendants have essentially turned on its head.”

Musk further stated in the lawsuit:

“To this day, OpenAI, Inc.’s website continues to profess that its charter is to ensure that AGI ‘benefits all of humanity.’ In reality, however, OpenAI, Inc. has been transformed into a closed-source de facto subsidiary of the largest technology company in the world: Microsoft.”

OpenAI’s Competitors

ChatGPT dominates the AI chatbot market, but other AI apps are also thriving. Companies like DeepMind, Google, and Meta, as well as Microsoft are among its key competitors as they seek to develop their own AI-based products and services.

DeepMindMeta AIHugging Face

Founded in 2010, DeepMind is also a research organization that focuses on developing AI technologies through reinforcement and deep learning. Google acquired DeepMind in 2015 to gain access to its resources.

Meta AI was established in 2013 as Facebook’s AI research arm, aiming to develop AI technology in areas such as computer vision, machine learning, natural language processing, and robotics. Meta AI is also developing some open-source software and AI tools that other researchers can access and build on.

Hugging Face was founded in 2016 to develop natural language processing (NLP) technologies, which have contributed to the development of the Transformers library, which provides pre-trained language models for tasks like question answering and translation used in AI algorithms.

The Bottom Line

OpenAI’s strategy is built on a foundation of innovation and collaboration. With a hybrid approach to open-source research and commercialization, a diversified revenue model, strategic partnerships, and a focus on long-term sustainability, the company is well-positioned to continue leading the development of artificial intelligence.

However, to succeed, the company will need to navigate major challenges, such as questions surrounding AI safety and ethics, as well as lawsuits challenging its infringements on intellectual property rights and business practices.

FAQs

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