OpenAI Struggles with High Operational Costs Despite its Pricey ChatGPT Pro Plan
CEO Sam Altam has acknowledged that OpenAI is losing money through the $200 per month ChatGPT Pro plan due high user activity that the AI startup had not anticipated, Techcrunch has reported. OpenAI unveiled ChatGPT Pro towards the end of 2024. The plan gives users access to advanced AI tools, including o1 Pro Mode- the upgraded version of OpenAI’s o1 reasoning model.
High Operating Costs
OpenAI’s high operational costs make it challenging for the AI startup to achieve profitability despite raising about $20 billion since its establishment. Costs such as office rent, staff, and AI training infrastructure, and high processing power are among the biggest cost centers for the company.
On one occasion, OpenAI said it was spending $700,000 per day to run ChatGPT. OpenAI’s expected losses for 2024 are expected to amount to $5 billion against a revenue of about $3.7 billion. To fix its financial problems, OpenAI is exploring options such as higher ChatGPT Pro plan price and restructuring.
High Computing Power
Sam Altman’s statements on X reflect a gross underestimation on the extent to which users will engage ChatGPT Pro on the part of OpenAI. While the $200 monthly fee was aimed at generating revenue for the AI startup, the amount of computing power required to provide the service far exceeded OpenAI’s estimations.
OpenAI financial losses are largely driven by the vast computational resources needed to run OpenAI’s tools. These resources increase as the user base grows. OpenAI introduced a $20 subscription fee for enterprise and general ChatGPT users. Thus fee generates a steady flow of income for the AI startup. However, its expenses still exceed revenue. Altman has previously said that OpenAI still needs more capital than it thought.
The AI startup is in the process of restructuring in order to attract new investors. But this process could be delayed by the ongoing Elon Musk vs. Sam Altman’s legal feud that has the two locked in a court battle over OpenAI’s future. Musk and Altman co-founded OpenAI in 2015 as a nonprofit before parting ways in 2018. The company says it’s considering charging higher ChatGPT Pro subscription fees to bridge the revenue shortfall.
The Next Steps
OpenAI is counting on optimistic forecasts to overcome its financial challenges. The AI startup projects revenues of up to $100 billion by the year 2029. In the meantime, the company has to find a way to sustain its ambitious operations. To do this, there is a high chance that the company will be adjusting subscription rates for enterprise and ChatGPT Pro users upwards.
In October 2024, OpenAI secured $6.6 billion in funding from investors and established a $4B line of credit with leading banks including Citi, JPMorgan Chase, Morgan Stanley, Goldman Sachs, SMBC, Santander, UBS, Wells Fargo, and HSBC. Even with such investments, OpenAI’s financial struggles point to the requirements of maintaining advanced AI systems in a highly competitive and fast-growing market.
OpenAI has significant financial backing from big techs like Nvidia and Microsoft This backing gives it the solid foundation to explore solutions.
