OpenAI’s Board, Paraphrased: ‘To Succeed, All We Need Is Unimaginable Sums of Money’

Sunday, 29 December 2024

From an un-bylined post from OpenAI’s board of directors on Friday:

The hundreds of billions of dollars that major companies are now investing into AI development show what it will really take for OpenAI to continue pursuing the mission. We once again need to raise more capital than we’d imagined. Investors want to back us but, at this scale of capital, need conventional equity and less structural bespokeness.

My take on OpenAI is that both of the following are true:

• OpenAI currently offers, by far, the best product experience of any AI chatbot assistant.
• There is no technical moat in this field, and so OpenAI is the epicenter of an investment bubble.

Thus, effectively, OpenAI is to this decade’s generative-AI revolution what Netscape was to the 1990s’ internet revolution. The revolution is real, but it’s ultimately going to be a commodity technology layer, not the foundation of a defensible proprietary moat. In 1995, investors mistakenly thought investing in Netscape was a good way to bet on the future of the open internet and the World Wide Web in particular. Investing in OpenAI today is a bit like that — generative AI technology has a bright future and is transforming the world, but it’s wishful thinking that the breakthrough client implementation is going to form the basis of a lasting industry titan.

There’s even a loosely similar origin story. Netscape started life as Mosaic, a free-of-charge browser that debuted in January 1993 and instantly revolutionized the nascent-but-still-obscure World Wide Web by adding support for images. Mosaic was developed and released by a team led by Marc Andreessen at the National Center for Supercomputing Applications (NCSA). A year later Andreessen and his team left NCSA and, with Silicon Graphics founder James Clark, founded Netscape Communications Corporation, using the Mosaic browser as the foundation for Netscape Navigator. OpenAI’s whole “forget about this being a public-benefit thing, let’s make it a for-profit thing” transition is very reminiscent of the Mosaic-to-Netscape transition.

The biggest difference is that Netscape went public quickly, and that’s when the investment money poured in. NCSA Mosaic debuted in January 1993 and Netscape’s IPO was just 2.5 years later, in August 1995. OpenAI has raised tens of billions of dollars already — $13 billion from Microsoft alone — while still in this uncertain transition from an ostensibly not-for-profit foundation to a totally-for-profit company.

OpenAI’s board now stating “We once again need to raise more capital than we’d imagined” less than three months after raising another $6.6 billion at a valuation of $157 billion sounds alarmingly like a Ponzi scheme — an argument akin to “Trust us, we can maintain our lead, and all it will take is a never-ending stream of infinite investment.”