Will companies purely specializing in artificial intelligence ever be profitable? If OpenAI is a bellwether, it’s hard to see how.
The problem for any company creating these generative AI systems is that the more people use them, the more expensive it becomes. So what would be a success for most businesses would actually be a drain of money. Consider: OpenAI’s ChatGPT has over 300 million weekly active users, more than any other pure GenAI company. It also has the lowest churn rate of these companies, retaining more than 70% of paying subscribers after six months. Looks good, right?
However, earlier this month, CEO Sam Altman wrote“Crazy thing: we are currently losing money on OpenAI pro subscriptions! People are using it way more than expected. (Pro subscriptions cost $200 per month.)
This is the exact opposite of economy of scale. Instead of costs decreasing as production increases, they increase. Costs come from the computing power used to run ChatGPT. This requires huge investments in data centers and large amounts of electricity to run them.
GenAI companies are not the first technology companies to face this problem. It’s endemic to ride-hailing apps like Uber and Lyft and music streamers like Spotify, all of which are now making money. In 2024, Uber and Spotify recorded their first profitable years, and Lyft had two profitable quarters.
But… their overhead is much lower than GenAI. Spotify turned positive thanks to laying off 2,000 people and cutting its marketing budget. Last year, OpenAI lost about $5 billion on revenue of $3.7 billion. I doubt OpenAI will spend $1.3 billion on marketing. OpenAI also suffers from the commodification of GenAI. There is no significant differentiator between GenAI offerings, meaning customers will look at price first.
Pure GenAI companies have all the elements of an asset bubble: lots of money flowing in and no clear path to profitability. The same cost problems persist in non-pure sectors. Google, Meta, Microsoft and others are making enough money elsewhere that the costs of AI don’t cripple them. However, at some point, investors may become grumpy about this massive spending.
And, by the way, the Wall Street Journal reports that Google CEO Sundar Pichai wants 500 million people to use the Gemini AI-powered chatbot by the end of this year.
Here’s this week’s roundup of AI-powered martech releases:
Quad/Graphics launched At-Home Connect, a direct mail platform that combines the convenience of email with the impact of print marketing. The platform has integrated data-driven design and messaging with precise timing to improve omnichannel marketing campaigns.
Ardis Technologies included Axle AI Media Asset Management with its DDP storage system. This provides users with tools to generate proxies, organize media assets, and use powerful search capabilities within the DDP ecosystem.
Simpli.fi launched Simpli.fi Autopilot AI, an all-in-one tool that allows advertisers to effectively manage omnichannel campaigns. The platform offers simplicity, control and a pay-as-you-go model with no minimum spend.
Research source combined with Klevu to create Athos Commerce, an integrated e-commerce product discovery platform. Athos Commerce offers AI-powered search, personalization, and merchandising capabilities.
Algolia launched Shopping Guides, a content generation tool that uses AI to create informative articles for e-commerce websites. These guides provide buyers with valuable information at different stages of their journey.
High touch launched Hightouch for Offsite Media Networks, a platform developed with Databricks. This solution enables retail media networks to create and activate AI-enhanced custom audiences across various media channels.
writerX.ai introduced a new platform to streamline content workflows. It offers tools for managing projects, generating content in bulk, integrating with WordPress, and optimizing SEO.
Stellaan AI marketing platform launched with features to automate social media marketing and customer engagement. It helps small businesses create data-driven content and manage multi-channel campaigns.
Reply.io launched an AI-powered solution for TikTok messaging ads. This allows businesses to manage TikTok messages and conversations from other popular channels on one platform.
Well said announced the “Caruso” model for its AI voice platform. Caruso includes AI Director, a feature that allows users to adjust the emotional intonation of AI voices.
Game Creator launched as a platform to manage and optimize sponsorships in sports and entertainment. It uses AI to automate asset management and provides collaboration and risk management tools.
Adjust launched Adjust Growth Copilot alpha, an AI-powered solution designed to answer marketers’ questions and provide insights to help them achieve their goals.
Apollo introduced its “Win Deals” solution, which uses AI to automate tasks such as pre-meeting research, meeting scheduling and analysis of call recordings.
Lucid works has released its AI orchestration engine, enabling businesses to manage their generative AI initiatives. The engine provides tools for data acquisition, machine learning operations, and security.
Parcel laboratory launched pL Copilot, an AI assistant that helps teams optimize customer communications and identify areas for improvement in operations. It also launched an AI Email Editor to automate email personalization.
