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Open AI shake-up is a prime case for a Harvard Business Review paper that will be discussed for years to come. In this issue, I will provide my business strategy take on OpenAI plus a high-value ChatGPT for business Cheatsheet I created to help business leaders.

1. OpenAI Business Strategy Analysis

   1. About OpenAI:

      1. Company structure,

      2. Timeline

      3. Revenue model

   2. Positioning: SWOT analysis

   3. Competitive environment: Porter 5 forces

   4. Macro-Environment: PESTEL analysis

2. AI stats & trends:

3. AI in action: ChatGPT for Business Cheatsheet

1) About OpenAI

A) Company structure

OpenAI is an AI research and deployment company on a mission to ensure that artificial general intelligence benefits all of humanity.

OpenAI was founded as a nonprofit in late 2015. It was co-founded by Sam Altman, Greg Brockman, Ilya Sutskever, John Schulman, Elon Musk, and Wojciech Zaremba. Elon Musk left later due to a conflict of interest. 

Over the years, OpenAI raised $130.5 million from the $1 Billion goal as a nonprofit. In 2019, they announced “Capped profit.” This devised structure would preserve nonprofit mission, governance, and oversight while enabling OpenAI to raise capital and hire world-class talent. The capped-for-profit limits the maximum financial returns to balance commerciality with safety and sustainability.

OpenAI has a strategic partnership with Microsoft, which has invested $10 Billion into OpenAI. Note that Microsoft agreed to leave Artificial General Intelligence “AGI” technologies and governance for the Nonprofit arm of OpenAI.

B) Timeline of Sam Altman’s firing from OpenAI

Sam Altman is the CEO of OpenAI since 2019. In a turmoil of events, Sam Altman was ousted and re-instated as CEO within 5 days. Here is a timeline:

• November 17th: The board ousted Sam Altman. Greg Brockman (co-founder of OpenAI) and three senior OpenAI researchers resigned on the same day.

• On November 18th, Altman hints at a new venture, and investors press the board to reinstate Altman as CEO.

• November 19th:  Sam Altman meets the board. The board was also vetting for a new CEO. They appointed Emmett Shear, Cofounder of Twitch, “ a video streaming site,” as interim CEO, replacing Mira Murati. 

• On November 20th, 650 out of 770 employees threatened to resign unless the board re-appointed the ousted CEO. 

• Altman, Brockman, and colleagues announced they will join Microsoft to lead a new AI research team.

• November 21st: OpenAI and Sam Altman reached an agreement for him to return as CEO, plus added new board members, Larry Summers (Former secretary of the treasury) and Adam D’Angelo (Quora founder).

C) OpenAI Revenue model

OpenAI has developed various technologies and tools in artificial intelligence, such as ChatGPT, which reached 100 million users within two months. DALL.E, Whisper, and assistants APIs

OpenAI generates revenue primarily through licensing its products and services, plus subscriptions, partnerships/collaborations, and investments. 

1. Licensing: is the primary source of OpenAI's income from licensing fees for its models/products.

• The dall-E image model costs $0.016 to $0.120 per image.

• Language models are charged based on tokens (1,000 tokens ≈ 750 words).

• Whisper audio model is priced at $0.006 / minute

• Collaboration with Microsoft enhances distribution and licensing income.

2. Subscription Model:

• Premium access at $20/month, supplementing free ChatGPT usage.

• Free access serves to gather user feedback for model improvements.

3. Partnerships & Collaborations:

• Revenue generation through partnerships, notably a $10 billion deal with Microsoft in 2023.

4. Investments in AI Startups:

• OpenAI Startup Fund, launched with $100 million, focuses on strategic investments in AI startups.

• Generates returns through equity stakes in these startups.

2) OpenAI Positioning: SWOT Analysis

SWOT is a strategic planning tool used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a business venture.

• Strengths:

  • Advanced AI technology and innovation.

  • High-profile partnerships and well-known experts on the team.

  • Significant contributions to AI advancements with superior AI algorithms and models worldwide. 

• Weaknesses:

  • High operational costs and reliance on external funding can hinder their growth.

  • Their success depends on attracting and retaining top AI talent, which can also be a weakness for the organization.

  • Ethical concerns in AI Include bias, transparency, and artificial general intelligence (AGI) that can learn and accomplish any task human beings can perform.

• Opportunities:

  • Rising demand for AI in various sectors (e.g., healthcare, finance).

  • Potential for growth through digital marketing and infrastructure optimization.

  • Opportunities to expand and nurture the AI ecosystem.

• Threats:

  • Regulatory and compliance challenges.

  • Intense competition in AI development. For instance, Meta launched an open source AI model, Llama, Anthropic received $ 2 billion from Google, Samsung launched the Gauss language model, X launched Grok, which can train on data from X users

  • Necessity to align with shared principles and governance in AI

3) OpenAI Competitive Environment: Porter’s Five Forces Analysis

Porter's Five Forces is a framework developed by Michael E. Porter. It helps us understand strategic positioning using the competitive forces shaping the business environment, including industry rivalry, the threat of new entrants, the bargaining power of suppliers and buyers, and the threat of substitute products or services.

Industry Rivalry: High with competition from major tech companies developing their models (open source Llama by Meta) and backing up rival AI startups (Google with Anthropic, maker of Claude).

Threat of New Entrants: Moderate due to AI technology's complexity, given the significant capital and resources needed.

Bargaining Power of Suppliers: Moderate, constrained by the specialized nature of AI resources such as AI chips by Nvidia.

Bargaining Power of Buyers: Increasing as the availability of alternative models and demand for customized AI solutions grow.

Threat of Substitute Products or Services: Moderate but rising with advancing alternative technologies.

4) OpenAI Macro-Environment: PESTEL Analysis

PESTEL helps understand the macro-environmental factors that can impact an organization. PESTEL stands for Political, Economic, Social, Technological, Environmental, and Legal factors.

Political Factors:

The government is scrutinizing Open AI about AI ethics and usage. OpenAI should involve collaboration with policymakers for regulations that uphold safety and transparency.

Economic Factors:

There is a thriving tech economy with significant AI investments. OpenAI should explore diverse funding sources, including diversifying partnerships, so they are not solely relying on Microsoft.

Social Factors:

With rising public interest and ethical concerns about AI. Open AI should engage with stakeholders (public, industry leaders, and policymakers) to address public concerns about AI.

Technological Factors:

AI technology is advancing fast. Reliance on external hardware, such as Nvidia AI chips, can hinder their progress. Therefore, OpenAI should diversify its hardware sources. For instance, Microsoft (a Strategic partner & investor) is developing its own AI chip.

Environmental Factors:

Data storage and training of AI models use lots of energy and have an environmental impact. For instance, training GPT-3 consumed 1287 MWh of electricity, resulting in carbon emissions of 502 metric tons, equivalent to driving 112 gasoline-powered cars for a year. When training new AI models, OpenAI should focus on energy consumption and its environmental impact.

Legal Factors:

Emerging regulations around data privacy, Intellectual Property (IP), and AI usage. For instance, the European Union AI Act classifies AI systems according to the risk they pose to users. OpenAi and other companies developing AI systems can face litigation from creators who claim their protected IP was used to train the AI system without consent.

• Inflection AI releases a new AI model “Inflection 2.0”: shows it beats Google PaLM2.

  

• Amazon Launches Q, a Business Chatbot Powered by Generative AI

I created the ChatGPT cheat sheet I wish I had as a founder and CEO.

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P.S. Always consult with your medical professional.

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Thank you for reading!

Until next week,

Nadia.

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