🍕 Is AI profitable? 🤔

+ OpenAI's new AI-generated image detection tool, Amazon's AI image generation tool, Airbnb uses AI to detect Halloween parties, and more!

Author

Gianluca Mauro
October 26, 2023

Hey there,

I’ve announced that this newsletter will have a few changes coming up soon. You’ll get to know what these changes are in the next edition, so stay tuned 🎉

In the meantime, we’ve kickstarted the new edition of the Master in Prompt Engineering with 30 new amazing students. The waiting list for the fourth edition is open - I recommend you join it because seats sell out fast and people on the waiting list get to join the program first (with a discount).

This week’s news:

  • Is AI profitable? 🤔

  • Pizza Bytes 🍕: OpenAI's new AI-generated image detection tool, Amazon's AI image generation tool, Airbnb uses AI to detect Halloween parties, and more!

Now let’s get started 🕺

Is AI profitable? 🤔

We’ve seen how hundreds of companies have been rushing to integrate AI into their products. However, with great power comes great financial responsibility.

Most companies have integrated AI into their products by leveraging providers like OpenAI. All these companies charge you per usage: every time a user does something that requires you to use AI, your company gets billed. In the case of OpenAI, their pricing changes based on the model. The most expensive model (GPT-4) costs between 0.045$ for every 750 words (the calculation is a bit more complex than that, this is an average).

Let’s put ourselves in the shoes of a startup selling a “writing copilot” tool, charging users 10$/month. Our startup leverages GPT-4 and has built an amazing user experience around it, with functionalities specific for writing. Let’s say one of our users uses our tool to write a book of 100,000 words. That means we’d have to pay roughly 6$ to OpenAI to use GPT-4 and plug its outputs into your product. We’re left with a 4$ margin. What if he writes 5 books in a month? We’ve lost $20/month.

This is not a random case: Github Copilot (a code-writing assistant) costs $10/month, and rumors say that in the first few months, the company was losing on average more than $20 a month per user, with some users costing the company as much as $80 a month.

The classic startup playbook is to “focus on growth now, think about profitability later” - if you have enough cash. Some of this cash may be running out, however. We’re already seeing many startups move away from OpenAI to cheaper alternatives.

Does this mean that AI is a big bubble that will burst soon? Yes and no. From one side, lots of hype has led to startups that will never be profitable as they’re using expensive tech to deliver marginal value to users (think “delivering a pizza with a Lamborghini”).

On the other side, I believe AI has the potential to truly redefine industries, and the companies that do will deliver so much value (that will be paid so much by customers) that the cost of running these large models will be totally sustainable.

In the meantime, startups should focus on a few things to be successful in this AI craze:

  • Focus on delivering real value (as said above)

  • Stay on top of technological innovation, looking at new AI technologies that are more cost-efficient

  • I believe that competition will bring costs down and make AI close to free (I’ve written about it). It will take time though. Try to survive long enough :)

Pizza Bytes 🍕

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