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  1. Home
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  3. OpenAI Has Become a Monopoly Giant, No Longer a Startup
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OpenAI Has Become a Monopoly Giant, No Longer a Startup

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  • baoshi.raoB Offline
    baoshi.raoB Offline
    baoshi.rao
    wrote on last edited by
    #1

    OpenAI has found a way to coexist with the numerous startups in its ecosystem—by officially transforming itself into a monopoly giant.

    On November 6th local time, OpenAI hosted its inaugural developer conference, introducing new tools currently in development. OpenAI is rolling out a major update that reduces the cost of building on ChatGPT by two-thirds. Additionally, OpenAI plans to release more developer tools to enhance convenience and further attract developers.

    The highlights of the event included the latest GPT-4 Turbo, which supports a larger context window, and a faster, more affordable Assistant API, making it easier for developers to build applications based on OpenAI's open APIs.

    One of the most eye-catching announcements was OpenAI's plan to create an AI app store. Even more enticing, all users will be able to purchase OpenAI's open APIs to create their own personalized GPT applications and submit them to the GPT Store. The store will allow public downloads and feature a leaderboard for GPT apps.

    OpenAI stated that in the coming months, people will be able to earn money based on the usage of their applications. The company wrote in its press release: "Once in the store, GPT apps will be searchable and featured on leaderboards."

    Currently, OpenAI plans to pay developers based on active users and category bonuses, with support for paid subscriptions to GPT apps by individual users coming later.

    Before and during this groundbreaking developer conference, discussions about OpenAI 'killing' startups were rampant. Almost every time ChatGPT introduces new features, startups are impacted. For example, the recent addition of features like "direct PDF reading" led many to exclaim that OpenAI would doom companies like ChatPDF, AskYourPDF, and PDF.ai. An Nvidia AI scientist even joked that these shell companies could go celebrate Halloween. Some even described the event as a funeral for developers.

    However, the reality is different. Through this conference, OpenAI made it clear to the world: it will no longer compete with developers because it has become a monopoly giant. Sam Altman addressed these concerns in a monopolistic fashion—by establishing the GPT Store and a GPT app distribution system, sharing profits with these startups like a big brother.

    Conflict of Interest

    OpenAI's strategic focus on the developer ecosystem has been evident for some time. In August of this year, it introduced the customizable fine-tuning feature for GPT-3.5 Turbo aimed at developers, and recently announced the upcoming release of OpenAI Python SDK 1.0 for developers.

    However, there has always been a conflict of interest between OpenAI and its developer users.

    Initially, an ecosystem was built around OpenAI's APIs, where small and medium-sized startups purchased APIs to fill gaps in unmet market demands, creating applications, offering services, and attracting paying users.

    Every company prioritizes its own interests. While small and medium-sized developers are a crucial revenue stream for OpenAI, their growth and success also pose a threat to OpenAI's interests. Developers bring revenue to OpenAI, but the applications they create also divert users and traffic away from ChatGPT.

    When OpenAI realizes that its losses in the consumer market outweigh the gains from the developer market, it won't hesitate to cut off developers' benefits.

    ChatGPT updates often incorporate features that overlap with those of developer-built applications, causing users to abandon third-party apps and return to ChatGPT. These developers, who originally purchased OpenAI's APIs, will naturally reduce their API expenditures if their paying user base shrinks, leading to a decline in OpenAI's revenue from developers.

    On the surface, OpenAI welcomes small and medium-sized developers, but this is essentially a trap. While OpenAI claims to want to build a developer ecosystem, it simultaneously expands its own product into a super app.

    The impact of this trap is that small and medium-sized developers continue to flock to OpenAI, contributing a steady stream of revenue, while their own interests are eroded.

    Take Grammarly, for example. Before ChatGPT emerged, Grammarly's AI-powered proofreading feature was highly popular. But when OpenAI offered free English writing assistance, who would pay for Grammarly's services?

    The same logic applies to products like ChatPDF, AskYourPDF, and JasperAI.

    After some time, OpenAI realized that this approach would ultimately erode its own interests: if no one purchases services from Grammarly, ChatPDF, AskYourPDF, or JasperAI, why would these startups, built on OpenAI's ecosystem, continue to buy OpenAI's APIs? This naturally leads to a decline in OpenAI's revenue.

    Balancing Interests

    Prior to the developer conference, OpenAI's CEO expressed intentions to create tools enabling developers to achieve more. However, such gestures were primarily aimed at protecting developer market interests without guaranteeing sacrifices in the consumer market.

    This highlights OpenAI's inherent conflict: aspiring to be both a developer-centric platform and a consumer-facing AI chatbot powerhouse. Without finding equilibrium between individual developers and end-users, OpenAI risks perpetuating inconsistent policies, leaving SME developers vulnerable to competitive encroachment.

    While not yet extreme, consider this hypothetical: Should ChatGPT address all market needs by consolidating every functionality into a super app, it would render third-party API-based products obsolete - effectively destroying the developer ecosystem and its associated revenue stream.

    As noted by Shubham Saboo, Tenstorrent's AI Director: "ChatGPT's strategy is consolidation, innovation, and domination. It aims to become the ultimate AI super-app, integrating Midjourney, PDF Chat, Perplexity AI, and advanced analytics into one platform."

    OpenAI now faces a pivotal decision: continue building its developer ecosystem or aggressively expand features toward super-app status. It requires a strategic approach to harmonize consumer and developer market interests.

    The Decision Made

    Altman has seemingly chosen his path. At the conference, he announced OpenAI would provide revenue sharing for GPT Store creators, initially allocating a portion of subscription income. This mirrors Apple's ecosystem strategy - attracting developers through lower barriers to entry, offering cost-efficient Assistant APIs, and facilitating app development.

    The newly introduced GPT Store with its revenue-sharing mechanism successfully reconciles competing interests between consumer and developer markets. By incorporating developers into its traffic system, OpenAI resolves previous conflicts where developer growth cannibalized consumer segments.

    This partnership resembles an "IP licensor-licensee" model, requiring a sales-based economic distribution framework where OpenAI collects licensing fees while sharing profits based on product performance.

    This way, there's no need to worry that IP licensing will affect the revenue of the IP holder, as each sale by the licensee will generate a profit share for the IP owner.

    OpenAI and enterprise developers also have a 'purchase + revenue-sharing' relationship. Small and medium-sized developers not only need to purchase APIs but also share a portion of their profits with OpenAI based on their earnings. Every paying user of the developers contributes to OpenAI's revenue.

    As a result, OpenAI's income in the consumer market won't decrease with the growth of paying users for developers, as it does now, but will instead increase with the rise in paying users for developers.

    Whether individual users use OpenAI's ChatGPT or applications from paid developers within the OpenAI ecosystem, they will contribute to OpenAI's revenue, either directly or indirectly. This ensures OpenAI won't continuously erode the interests of developer users out of fear of losing its consumer market.

    OpenAI also doesn't need to worry about losing traffic to applications built by developers, as traffic, regardless of its source, will generate revenue for OpenAI.

    The True Beginning of the Giant's Path

    This mechanism design is just the beginning. These actions reveal OpenAI's ambitions, and after streamlining its software ecosystem, venturing into hardware seems increasingly inevitable.

    Although the recent developer conference didn't mention hardware, OpenAI has been active in this area. Reports suggest OpenAI CEO Sam Altman has privately contacted former Apple chief designer Jony Ive to develop a new AI hardware product. Recently, OpenAI was also reported to be in talks with SoftBank's Masayoshi Son for a new round of funding.

    Previously, OpenAI led an investment in 1X Technologies, a startup focused on commercial robots for professional environments, aiming to develop general-purpose robots that liberate labor.

    This company emphasizes the necessity of deploying humanoid robots in the real world. They believe that for humanoid robots to function in our world, they need to experience it—a strategy that aligns with OpenAI's approach of using real-world feedback to build a general AI system.

    Interestingly, Tesla's Optimus commercial robot shares the same positioning. In fact, in terms of commercial deployment progress, 1X Technologies is moving faster than Tesla.

    OpenAI CEO Altman has denied plans to develop a smartphone, but we can still speculate about hardware: at the system level, such hardware could integrate paid, free, and enterprise versions of ChatGPT.

    By integrating all products from its API developer ecosystem, OpenAI has built an app store and established a distribution system similar to the App Store.

    OpenAI CEO Sam Altman hopes to use hardware to realize his ambition of monopolizing all users. Through this hardware, it can establish a closed hardware-software integrated system, forming its own moat, incorporating all applications from the GPT developer ecosystem, and building a distribution system to monopolize all benefits in the chain.

    Just like Amazon's Kindle and the books sold on it. Since you would buy a Kindle to access books with publishing rights monopolized by Amazon, you would also buy OpenAI's hardware for its exclusive products. Hardware sales enable OpenAI's products to better reach users. With this moat, OpenAI can firmly control both individual and enterprise users, competing against rivals like Claude for individual users and Microsoft for enterprise clients.

    In summary, OpenAI can now be considered an official tech giant. This positioning has allowed OpenAI to find a way to coexist with the entrepreneurs and developers operating within its ecosystem, much like Apple, Google, and Nvidia have done. However, Altman has completed the journey from startup to monopolistic infrastructure giant faster than these predecessors.

    Naturally, it will now face the same challenges as other giants. A crowded and airtight ecosystem means that any further independent steps it takes on top of its infrastructure could harm the ecosystem, leading to direct and fierce competition.

    The key question is whether OpenAI will become an overbearing 'big brother' ready to reap benefits at any time or resist the temptation to exploit its position under immense cost and competitive pressures. Altman's choices will ultimately determine how great a company OpenAI can become.

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