Will pure-play artificial intelligence companies ever be profitable? If OpenAI is any indicator, it’s hard to see how.
The problem for any company creating these generative AI systems is the more people use them, the more it costs. So, what would be success for most businesses is actually a money drain. Consider: OpenAI’s ChatGPT has more than 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 paid subscribers after six months. Sounds good, right?
However, earlier this month, CEO Sam Altman wrote, “Insane thing: we are currently losing money on OpenAI pro subscriptions! People use it much more than we expected.” (Pro subscriptions cost $200 a month.)
This is the exact opposite of economy of scale. Instead of costs going down as production increases, they are going up. The costs come from the computing power used to run ChatGPT. It requires huge investments in data centers and vast amounts of electricity to run them.
GenAI companies are hardly the first tech companies to face this issue. It’s endemic to ride-sharing apps like Uber and Lyft and music streamers like Spotify, all of whom are now making money. In 2024, Uber and Spotify reported their first-ever profitable years, and Lyft had two profitable quarters.
But … their overhead costs are much, much lower than GenAI. Spotify went 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 is spending $1.3 billion on marketing. OpenAI is also suffering from the commodification of GenAI. There’s no significant differentiator among the GenAI offerings, which means customers will look at price first.
Pure play GenAI companies have all the makings of an asset bubble: Lots of money going in and no clear path to profitability. The same cost issues are dogging non-pure plays. Google, Meta, Microsoft and others are making enough money elsewhere that AI costs aren’t going to cripple them. However, at some point, investors could get cranky about these massive outlays.
And, by the way, The Wall Street Journal reports that Google CEO Sundar Pichai wants 500 million people using the chatbot powered by Gemini AI by the end of this year.
Here’s this week’s roundup of AI-powered martech releases:
- Quad/Graphics introduced At-Home Connect, a direct mail platform that combines the convenience of email with the impact of print marketing. The platform integrated data-driven design and messaging with precise timing to enhance 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 utilize powerful search features within the DDP ecosystem.
- Simpli.fi launched Simpli.fi Autopilot AI, an all-in-one tool that allows advertisers to manage omnichannel campaigns efficiently. The platform offers simplicity, control and a pay-as-you-go model with no minimum spend.
- Searchspring combined with Klevu to create Athos Commerce, an integrated platform for ecommerce product discovery. Athos Commerce offers AI-driven search, personalization and merchandising capabilities.
- Algolia launched Shopping Guides, a content generation tool that uses AI to create informative articles for ecommerce websites. These guides provide shoppers with valuable insights at different stages of their journey.
- Hightouch launched Hightouch for Offsite Media Networks, a platform developed with Databricks. This solution enables retail media networks to build 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.
- Stella, an AI marketing platform, launched with features to automate social media marketing and customer engagement. It helps small businesses create data-driven content and manage multichannel campaigns.
- Respond.io launched an AI-powered solution for TikTok Messaging Ads. This allows businesses to manage TikTok messages and conversations from other popular channels on a single platform.
- WellSaid announced the “Caruso” model for its AI voice platform. Caruso includes AI Director, a feature that enables users to adjust the emotional intonation of AI voices.
- PlayMaker launched as a platform to manage and optimize sponsorships in sports and entertainment. It uses AI to automate asset management and provides tools for collaboration and risk management.
- 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 call recording analysis.
- Lucidworks released its AI orchestration engine, allowing businesses to manage their generative AI initiatives. The engine provides tools for data acquisition, machine learning operations and security.
- parcelLab 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.
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