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OpenAI is an App Company Now

After DeepSeek, OpenAI is an app builder above all else. Perhaps that was always the way.

When OpenAI’s financial projections leaked late last year, the numbers seemed a bit strange. The company had developed the best AI foundational models, had a head start in reasoning research, and aimed to develop artificial general intelligence. Yet for every projected year through at least 2029, it told investors that ChatGPT — not its underlying technology — would bring in most of its revenue.

Then this week, it started to make sense. When DeepSeek’s open source reasoning model all but equaled OpenAI’s at 3% of the cost, it exposed OpenAI’s model-building business. Despite investing billions of dollars in research, the company couldn’t maintain its domination over open source. And even if it jumps out ahead again, its margins will likely compress due to commoditization. All this leaves OpenAI right where it told investors it would be: A product company above all else.

“The business of training foundation models and selling API access is tough,” AI researcher Andrew Ng wrote this week. “In contrast, building applications on top of foundation models presents many great business opportunities.”

Of the four businesses in the AI boom, AI model building is the worst of all, as one industry source put it to me this week. The first business is hardware, and NVIDIA is dominating there. The second is datacenter, which Amazon, Google, and Microsoft are dividing up via cloud hosting services. The third is model building, where margins eventually disappear. And the fourth is applications.

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For OpenAI, the lane is clear. Building products on top of the technology — whether its own or others’ — is its best shot at a justifying the billions it’s raised. The other three businesses simply aren’t accessible or are too small for a company chasing a $300 billion valuation.

If this is a moment of clarification for OpenAI, it isn’t a bad thing. No company turns artificial intelligence into products better than it does. Its ability to build its GPT models into ChatGPT, which it initially conceived as a demo, kicked off this entire generative AI moment. And ChatGPT is now booming. After stagnating a bit last year, the bot now has more than 300 million weekly users. And OpenAi’s product innovations — like voice chat — have propelled it forward. That’s a solid position to be in, far better than its fellow proprietary model builders, like Anthropic, whose consumer products haven’t yet achieved the same traction.

New data shows OpenAI leads the AI app game by some margin. Its ChatGPT app has earned $529 million to date, about four times the amount of its nearest competitor, according to a report from Appfigures. The total estimated mobile AI app market is currently $2 billion, according to the report, and that market should grow as more improvements — like OpenAI’s new Operator product — roll out.

Now, it’s possible that OpenAI builds artificial general intelligence, or AGI, and its models will be worth far more than anyone can anticipate. Sam Altman winked at the notion this week in his response to DeepSeek when he said, “look forward to bringing you all AGI and beyond.” But that milestone is likely at least a few years away, and OpenAI would have to be the only one providing such technology to fully capitalize on it. Listen to leaders at Anthropic and Google DeepMind, and it seems clear the industry will reach that point almost at once.

For OpenAI then, the worst part of the DeepSeek frenzy was seeing the DeepSeek app climb to the top of the charts. That’s a feat the Claudes and the Perplexities of the world have yet to achieve. It was a direct assault: An upstart competitor coming for its real business, a chat app. That said, once the initial wave of DeepSeek interest subsides, OpenAI will still have a better product. ChatGPT, for instance, has voice capabilities that sets it apart. But it’ll now have to keep churning out the hits to stay ahead, something every app business knows all too well.

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What Else I’m Reading, Etc.

OpenAI is trying to raise $40 billion at a $300 billion valuation [Wall Street Journal]

Siri somehow got even dumber [Daring Fireball]

Meta sold 1 million+ smart Ray Bans glasses last year [The Verge]

Amazon is suing to block the Washington Post from obtaining [GeekWire]

In leaked recording, Mark Zuckerberg says he’s angry at leaks [404 Media]

Big Technology has a discord now. Join here: [Big Technology]

Number of The Week

11.1%

Apple sales in China dropped double digits in the fourth quarter of 2024, missing analysts’ already muted expectations.

Quote of The Week

The efficiency innovations DeepSeek developed will soon be applied by both US and Chinese labs to train multi-billion dollar models. These will perform better than the multi-billion models they were previously planning to train — but they'll still spend multi-billions. That number will continue going up, until we reach AI that is smarter than almost all humans at almost all things.

Anthropic CEO Dario Amodei on how DeepSeek will change AI development moving forward.

Why The AI Investment Will Pay Off — With Reid Hoffman

Reid Hoffman is the co-founder of LinkedIn, a legendary Silicon Valley investor, and author of the new book Superagency: What Could Possibly Go Right with Our AI Future. Hoffman joins Big Technology Podcast to discuss his optimistic case for AI, the massive investments flooding into the field, and whether they can possibly pay off. Tune in to hear Hoffman's insider perspective on OpenAI's $6.6 billion raise, the emergence of DeepSeek, and why he believes these unprecedented investments will seem small in retrospect.

You can listen on Apple Podcasts, Spotify, or your podcast app of choice

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