AI Business Models Are Changing Fast

OpenAI and Anthropic are investing billions annually in training advanced AI models like GPT-4 and Claude, yet the financial viability of these platforms is under threat due to aggressive price competition. Industry experts, including Gomez from 20VC, highlight that the current model of selling API access to these AI systems is becoming increasingly unsustainable. With costs outpacing revenues, companies are finding it challenging to maintain profitability in a market characterized by price dumping. The competitive landscape is intensifying, as major players like OpenAI, Google, and Cohere are slashing prices to attract and retain users. Meanwhile, Meta’s open-source models are available for free, further complicating the pricing dynamics. Gomez points out that while there is significant excitement at the application layer—evidenced by OpenAI’s subscription model for ChatGPT—this may not be enough to offset the financial pressures faced by companies solely focused on model sales. Gomez remains optimistic about the long-term prospects for Cohere’s AI models, suggesting that developing products could provide a more stable revenue stream in the interim. However, he warns that startups are particularly vulnerable, as they lack the financial backing that giants like Microsoft and Google possess to absorb losses. The reliance on cloud providers can be precarious, as their interests may not align with those of the startups, creating a challenging business environment. As the industry grapples with these issues, the future remains uncertain, with many AI startups potentially facing extinction if they cannot adapt to the evolving market conditions.