Disclaimer: These thoughts are my own and do not constitute investment or legal advice. They are purely educational. Please refer to the terms and conditions for further information.
OpenAI has been at the forefront of the latest hypercycle in Artificial Intelligence. Driven by ChatGPT’s visibility, OpenAI has captured the news cycle and pushed AI into many different businesses. With its presence in the news cycle and the associated fear of founders and investors missing out on the AI boom, many overlooked that OpenAI is itself a startup. Worse still, it is a startup that is losing money. As of mid-August 2023, OpenAI is moving more toward bankruptcy than profitability.
As an investor and board member of multiple startups, including AI-aligned ones, reliance on OpenAI becomes a strategic risk question. So let us look at OpenAI’s impact and what steps we can take to protect against overreliance.
The strategic importance of OpenAI
Everyone has heard of the ChatGPT chatbot, which lets people interact with Large Language Models (LLMs). These have pushed AI to the forefront of the technology and general news cycle and dominated the discussion of the technology’s opportunities and dangers.
Yet, for the technology sector and OpenAI, GPT-3 and GPT-4, accessible via APIs, are far more critical. They let companies integrate AI capabilities into their software without the trouble of training an in-house LLM.
Consequently, they enable companies to rapidly and cost-efficiently prototype AI-based features. Yet that dependency means any risk to OpenAI becomes a risk to the companies using GPT-3/4. Bankruptcy or reorganization after acquisition are two of these risks.
Current worries about OpenAI
Currently, OpenAI is spending significant funds to drive AI development. At the same time, the revenue streams from selling access to its AI model aren’t yet well developed. Many AI applications still need to be developed and sold. Thus, high development costs and low revenue make OpenAI unsustainable for now.
An unclear vision is compounding this problem. While OpenAI should focus on strengthening its balance sheet, its founder seems more focused on politics and pushing AI closer to the Science-Fiction version we see in the media. As a result, new investors looking to profit from OpenAI’s current state are skittish about its future prospects.
Compounding the issue is ChatGPT’s current status and how it might translate to OpenAI’s other products. Thus, the loss of users and the reduction in accuracy ChatGPT has experienced over the past couple of weeks are affecting API customers’ expectations. So far, there are no reports that the GPT-3 and 4 versions experience similar problems. However, the perception of these issues and the loss of momentum might be enough for business customers to reconsider.
While none of the issues in itself might bring OpenAI down, the combination of problems and viable competitors might be enough to push the company over the edge.
Strategic Risk Management to Protect Startups
Consequently, management, risk committees, and boards of AI-using companies should closely review potential mitigation and risk-management strategies. IT management should lead on the technical aspects, such as modularization and separating in-house code and business logic from integration. A key board question is how quickly IT and product development can switch and replace the integration, and whether strategic partners are needed to replace OpenAI.
Given the meteoric rise of Open Source AI, talent management should be another area to examine closely. Since a team at Stanford adapted Llama to their needs, companies focused on AI might want to build those capabilities in-house.
Lastly, as the hype cycle ebbs, it’s worth questioning the strategic need for AI. While AI often goes beyond glorified chatbots, current capabilities and advances aren’t always worth the substantial costs and risks.
Even if all these steps remain pure thought experiments, going through the motions will help prepare a company for a future where it might outgrow OpenAI.
AI Strategies cannot depend on one player
It is unquestioned that OpenAI significantly boosted the visibility and kickstarted the next level of digital transformation. However, OpenAI’s leadership shouldn’t translate into a monopoly.
Startups and companies alike survive by solving customer problems. We shouldn’t make our companies dependent on a single partner.
Even if we never need to change our AI partner, it is prudent to consider OpenAI’s failure. The strategic risk analysis and possible mitigation strategies are logical next steps.
