After reading Financial Times and Ed Zitron's articles[0][1], I've reached the opposite conclusion. OpenAI's situation healthier than what the outsiders once believed:
> Revenue: $13.07 billion
> Cost of Revenue: $7.5 billion
In other words generating tokens is actually a profitable business even for the frontier models. It's best to IPO when it's the case.
To be fair, a lot of that revenue is from subscriptions that aren't necessarily fully utilized. OpenAI said in March [0] that they have 50 million subscribers. Assuming they're all on the $8/month plan, that's $4.8 billion a year, likely at a pretty low COR.
The problem with that calculation though is that you’re ignoring the deprecation cost of developing the models which is where much/most of the cost actually lies.
Your math is saying an apartment building is profitable because rent exceeds utilities and other direct expense but ignores the mortgage. Real estate run with that math goes bankrupt quite quickly and this is essentially the same problem Open AI has.
Assuming that constant R&D is not a requirement to compete. At what point can any of these companies stop improving their models? The answer is when they have a monopoly position. And we’re nowhere near that happening.
[0]: https://openai.com/index/accelerating-the-next-phase-ai/