In the long run, Microsoft can still benefit from the success of OpenAI in other ways.
Microsoft can use OpenAI's technology indefinitely and receive a 75% share of its profits after OpenAI repays the initial investment, until the full $1.3 billion investment is recouped, after which the profit share will be 49%.
Furthermore, OpenAI must also pay Microsoft a 20% commission on API sales to operate its AI business in its Azure data centers.
It is reported that the gross margin of Microsoft Azure OpenAI services is about 40%, which has improved over time as AI models become more efficient. Given the reduced price OpenAI pays for using Microsoft's servers, OpenAI's API business can generate similar profits.
For every $1 in revenue that Microsoft earns from Azure OpenAI services, it pays 20 cents to OpenAI; and for every $1 in revenue that OpenAI earns from its own API sales, it pays 20 cents to Microsoft. Essentially, the revenue sharing between the two companies largely cancels each other out.
So vulnerable that they just offered the full product for free? 😀 The only real benefit of paid subscription at this point is higher use. Of course, they appear to be thinking with that move and the Apple deal that market share and solidifying user habits is more critical than revenue. New paid-exclusive features are sure to materialize down the road.
I suspect this will be a very large revenue line item for OpenAI for many years. More importantly, it gave them users and unexpected revenue for the interim period where business use of model inference is ramping up (at a rate I suspect is a bit behind their projections but still better than everyone else).
In the long run, Microsoft can still benefit from the success of OpenAI in other ways.
Microsoft can use OpenAI's technology indefinitely and receive a 75% share of its profits after OpenAI repays the initial investment, until the full $1.3 billion investment is recouped, after which the profit share will be 49%.
Furthermore, OpenAI must also pay Microsoft a 20% commission on API sales to operate its AI business in its Azure data centers.
It is reported that the gross margin of Microsoft Azure OpenAI services is about 40%, which has improved over time as AI models become more efficient. Given the reduced price OpenAI pays for using Microsoft's servers, OpenAI's API business can generate similar profits.
For every $1 in revenue that Microsoft earns from Azure OpenAI services, it pays 20 cents to OpenAI; and for every $1 in revenue that OpenAI earns from its own API sales, it pays 20 cents to Microsoft. Essentially, the revenue sharing between the two companies largely cancels each other out.
Agreed. Great added context.
I was suprised to read that ChatGPT is responsible for such a large share of the revenue; it also makes them vunerable in a way.
So vulnerable that they just offered the full product for free? 😀 The only real benefit of paid subscription at this point is higher use. Of course, they appear to be thinking with that move and the Apple deal that market share and solidifying user habits is more critical than revenue. New paid-exclusive features are sure to materialize down the road.
I suspect this will be a very large revenue line item for OpenAI for many years. More importantly, it gave them users and unexpected revenue for the interim period where business use of model inference is ramping up (at a rate I suspect is a bit behind their projections but still better than everyone else).