Doesn’t OpenAI still operate at significant losses by using massive infusions of capital from Microsoft and other investors? If you are giving away half your product, it’s not surprising that they would be undercutting competition. Not a new strategy.
Underprice to avoid or drive out competition and encourage lock-in, then increase prices when you no longer have competitors or your user base is large enough and reliant enough that your attrition is manageable. Then you sell to a bigger company who grinds it up and integrates into their own products. Same as always. Bonus points if you claim to be open source for the free marketing and/or free development/testing in the form of user contributions before switching to a proprietary model.
Shouldn’t we have a standardized corporate strategy bingo card by now?
I don't have any access to their financials, so this is speculative, but while they do 'give away' GPT-3.5-turbo in the free ChatGPT, the rest of the business is likely extremely profitable. If you want to estimate cost of serving those free requests, consider how much it costs to do that via API. A 10 message conversation, where ChatGPT outputs 200 tokens each time, is $0.002, or two-tenths of a cent. I believe their API usage to still be positive margin for them. (Of course, now consider how much markup there is in ChatGPT pro!!)
There is a difference between pricing aggressively and pricing at a loss. Their pricing for gpt-3.5-turbo now matches leading public providers for Llama-70B ($1/million tokens). Rumors are that 3.5-turbo is actually a 20B model, but even let's assume that it is larger than 70B: OpenAI can still price more aggressively than Llama-70B providers because they have better throughput and utilization of the same hardware.
Underprice to avoid or drive out competition and encourage lock-in, then increase prices when you no longer have competitors or your user base is large enough and reliant enough that your attrition is manageable. Then you sell to a bigger company who grinds it up and integrates into their own products. Same as always. Bonus points if you claim to be open source for the free marketing and/or free development/testing in the form of user contributions before switching to a proprietary model.
Shouldn’t we have a standardized corporate strategy bingo card by now?