Google, Nvidia, and OpenAI
stratechery.com244 points by tambourine_man a day ago
244 points by tambourine_man a day ago
> OpenAI’s refusal to launch and iterate an ads product for ChatGPT — now three years old — is a dereliction of business duty, particularly as the company signs deals for over a trillion dollars of compute.
I think this is intentional by Altman. He’s a salesman, after all. When there is infinite possibility, he can sell any type of vision of future revenue and margins. When there are no concrete numbers, It’s your word against his.
Once they try to monetize, however, he’s boxed in. And the problem with OpenAI vs. Google in the earlier days is that he needs money and chips now. He needs hundreds of billions of dollars. Trillions of dollars.
Ad revenue numbers get in the way. It will take time to optimize; you’ll get public pushback and bad press (despite what Ben writes, ads will definitely not be a better product experience.)
It might be the case that real revenue is worse than hypothetical revenue.
> It might be the case that real revenue is worse than hypothetical revenue.
Because Altman is eying IPO, and controlling the valuation narrative.
It's a bit like keeping rents high and apartments empty to build average rents while hiding the vacancy rate to project a good multiple (and avoid rent control from user-facing businesses).
They'll never earn or borrow enough for their current spend; it has to come from equity sales.
> It's a bit like keeping rents high and apartments empty to build average rents
with very particular exceptions at the high end (like those 8-figure $ apartments by Central Park that are little more than international money laundering schemes) this doesn't really happen irl
It does happen, in bad times apartments go empty rather than rents getting lowered, that is to ensure rents stay high.
This does not happen, if you forgo one month of rent you have to have kept prices up significantly to make up for the loss. The only reason this could happen is if your loan terms are pegged to rent roll (usually only on commercial properties).
an example: $5000/mo apartment generates $60,000 a year; forgoing one month of rent means you have to now generate $60,000 of revenue in 11 months, which in a bad market will likely not rent for $5450 if it didn't rent for $5000. Your mortgage still continues to pile up along with insurance and taxes, so you can't escape the hole.
But... They are testing ads.
https://www.reuters.com/business/media-telecom/openai-plans-...
Apparently they've declared a code red, because competition has got so hot. They're definitely going to do ads, but they may have to put it off. They can't afford ads at the moment ironically.
https://www.theinformation.com/articles/openai-ceo-declares-...
Absolute silicon valley logic: https://www.youtube.com/watch?v=BzAdXyPYKQo
"If you show revenue, people will ask 'HOW MUCH?' and it will never be enough. The company that was the 100xer, the 1000xer is suddenly the 2x dog. But if you have NO revenue, you can say you're pre-revenue! You're a potential pure play... It's not about how much you earn, it's about how much you're worth. And who is worth the most? Companies that lose money!"
I feel like I've been hearing this same argument about unicorn startups for fifteen years now: they aren't monetizing yet because it's easier to sell the possibility than the reality. There's probably some truth to it, but I think here it misses the mark, because OpenAI is monetizing. They're likely to hit $20 billion in annualized revenue by year's end. I guess maybe he's holding off on ads because then he can say that'll be even bigger?
But honestly...he's not wrong. I think ads in ChatGPT, Gemini, and Claude are going to absolutely dwarf subscription revenue.
The only justifications for OpenAI’s valuation are either (1) AGI round the corner or (2) ads.
I don’t think we’re close to AGI, but I do think ChatGPT has the potential to be the most successful ad platform in history. And I think they’ll probably succeed in building it.
Is this seriously trying to portray OpenAI/Altman or Nvidia/Huang as unlikely everyday dudes who reluctantly take up a challenge and rise to become heroes? I never stop being amazed at how people love to present rich, well connected, people as underdogs and turn them into heroes.
If you read about Huang's childhood it's quite surprising:
> At age nine, Jensen, despite not being able to speak English, was sent by his parents to live in the United States.[15] He and his older brother moved in 1973 to live with an uncle in Tacoma, Washington, escaping widespread social unrest in Thailand.[16] Both Huang's aunt and uncle were recent immigrants to Washington state; they accidentally enrolled him and his brother in the Oneida Baptist Institute, a religious reform academy in Kentucky for troubled youth,[16] mistakenly believing it to be a prestigious boarding school.[17] In order to afford the academy's tuition, Jensen's parents sold nearly all their possessions.[18]
> When he was 10 years old, Huang lived with his older brother in the Oneida boys' dormitory.[17] Each student was expected to work every day, and his brother was assigned to perform manual labor on a nearby tobacco farm.[18] Because he was too young to attend classes at the reform academy, Huang was educated at a separate public school—the Oneida Elementary school in Oneida, Kentucky—arriving as "an undersized Asian immigrant with long hair and heavily accented English"[17] and was frequently bullied and beaten.[19] In Oneida, Huang cleaned toilets every day, learned to play table-tennis,[b] joined the swimming team,[21] and appeared in Sports Illustrated at age 14.[22] He taught his illiterate roommate, a "17-year-old covered in tattoos and knife scars,"[22] how to read in exchange for being taught how to bench press.[17] In 2002, Huang recalled that he remembered his life in Kentucky "more vividly than just about any other".[22]
I grew up around that area, and this story has serious stench of PR crafted mythical origin story. Oneida Baptist Institute is a prestigious private school, not one of those child abuse mills, we've had a governor and a state rep attend that school.
Child labor is super common around these parts, especially on family farms. I grew up working on my family's tobacco farm just like pretty much everyone else. My uncle was even nice enough one summer to give me $20 a week for weeding and bug removal from a 5 acre farm. I thought it was so much money. I remember saving up to buy those bargain bin "300 Games" type CDs at Walmart.
I resent the conflation of child abuse and child labor. There's actually a healthy dose of labor for kids that we've all but disallowed from polite conversation
I wasn't attempting to create that conflation in my post, if you read that, I wasn't clear enough.
I personally think it's fine for children to work on their family's business as long as it doesn't impact their schooling or normal childhood activities. It is a fine line to walk, I don't believe I missed out on anything like after school activities, but that was largely because there aren't too many of those opportunities deep in the mountains in Kentucky. I say it's a fine line, because it's easy to see a scenario where children are put to work in, say a family restaurant, and prevented from doing after school activities like sports or clubs, and miss out on part of the well rounding of an education.
I certainly don't support children working for third parties that then profit off of their labor. In those cases, there is no way to align the incentives to protect the child.
Labor in the sense that it's abuse is exploitative. It's extractive. Child labor seeks to use the children for the profit of the adults running the operation. There's certainly _work_ that children can grow from doing. There's certainly work that looks like labor that children grow from doing. They just actually have to grow from doing it, and that must be the motivation. If you start making money off of children, then your care for the limits of the "healthy dose" starts diminishing real fast.
Yep this, children are the most vulnerable class. If the capitalist system had the power it had in the past, we'd just throw them into factories at age 6 or 7 again and damn them to the terrible life of a factory worker with no rights so some adult can have slightly more.
To be honest, I would be more surprised if he came from a more normal middle class background.
Interestingly enough, the other Nvidia co-founder (Curtis Priem) ended up cashing out decades ago and has been donating pretty much all of his wealth to his (and my) alma mater, RPI. Also an interesting story, see this from ~2y ago: https://www.forbes.com/sites/phoebeliu/2023/11/26/this-nvidi...
Unfortunately we do like rich people. We do hold them up as hero's. We fantasize about being rich. Watch shows about their lives, etc...
Bruce Wayne was rich. Those fancy suits and cars aren't cheap.
Tony Stark was rich. Fancy robot tech isn't cheap.
It takes money to actually do anything. Super Hero stories about rich people. We idolize making a difference with the money.
If by "we" you mean US popular culture, yes. It's not universal, and definitely varies by country.
In the UK we don't tend to idolise the rich so much. Not to say it doesn't happen, but in popular culture positive depictions tend to be limited to period portrayals of idealised aristocracy (and even then it's rarely shown as heroic), with contemporary wealth usually treated as a dubious virtue.
Yes. Good point. This is a pretty US specific cultural phenomenon.
Probably rooted in the 'self made man', 'rugged individualism'. Go West to make your fortune. We forget the US is pretty young, and still has a lot of culture based on colonizing the west, taming the wilderness to find your riches.
The point is to cover your tracks and making sure no one will be able to repeat that. They want to send you in a random direction, even, if you only want to try.
"advertising would make ChatGPT a better product."
And with that, I will never read anything this guy writes again :)
I like and read Ben's stuff regularly; he often frames "better" from the business side. He will use terms like "revealed preference" to claim users actually prefer bad product designs (e.g. most users use free ad-based platforms), but a lot of human behavior is impulsive, habitual, constrained, and irrational.
I agree that is what he is doing, but I can also justify adding fentanyl to every drug sold in the world as "making it better" from a business perspective, because it is addictive. Anyone who ignores the moral or ethical angle on decisions, I cannot take seriously. It's like saying that Maximizing Shareholder Value is always the right thing to do. No, it isn't. So don't say stupid shit like that, be a human being and use your brain and capacity to look at things and analyze "is this good for human society?".
> It's like saying that Maximizing Shareholder Value is always the right thing to do. No, it isn't.
it is, for the agents of the shareholders. As long as the actions of those agents are legal of course. That's why it's not legal to put fentanyl into every drug sold, because fentanyl is illegal.
But it is legal to put (more) sugar and/or salt into processed foods.
No, it’s not. The government, and laws by proxy, will never keep up with people’s willingness to “maximize shareholder value” and so you get harmful, future-illegal practices. Reagan was “maximizing shareholder value”, and now look where the US is.
you have to show this 'future-illegal' action is harmful first by demonstrating harm.
That's why i used the sugar example - it's starting to be demonstrably harmful in large quantities that are being used.
I am against preventative "harmful" laws, when harm hasn't been demonstrated, as it restricts freedom, adds red tape to innovation, and stifles startups from exploring the space of possibilities.
I can understand that stance. The trouble is, with more power and more technology, more harm can be done, much quicker. This will become a freedom vs. survival issue, and by definition, freedom is not going to survive that.
> starting to be demonstrably harmful
Starting?
Some say there is a link between calorie consumption and weight gain but we don’t know for sure.
I thought they said it was all slow metabolism and lack of exercise, aka bad luck (genes) and laziness.