By: Chris Bignell, CEO
PC Gamer reported last week (from the original source The Information) that OpenAI may
burn its way through $8.5 billion in the last year- that’s more than the annual GDP of holiday paradise The Maldives.
Largely funded by Venture Capitalists and Microsoft and valued earlier this year at $80
billion, profitability is likely not the key priority of the company right now, but this kind of cash burn raises the question “will it ever make any money and even then, will it be enough to pay back the investment?” History suggests that as a pioneering business, the answer will be “no”.
An historical reminder
As a reminder during the tech bubble of the 1990s, Lastminute.com (the first travel agent
online) floated on the London Stock Exchange in 2000 and on its first day the company was
valued at more than £700 million. This was a two year old company that had never made a
profit. By 2005 it was taken private for around £500 million (a 50 percent premium on the
share price at the time) and by 2015 its value was £76 million.
Equally, for a short period before Facebook, Friends Reunited was the place to go to find
news about school friends and old romances. Having launched in 2000, the company was
purchased in 2005 by UK broadcaster ITV in a deal valuing the company at £175 million. By
2009 it was sold again for £25 million and then later valued by its acquirer at £5 million. It
closed altogether in 2016.
First is not always best
Both Lastminute.com and Friends Reunited were the first players in soon-to-be lucrative
markets – much like OpenAI. Yet neither brand survived to dominate the market. Today,
Lastminute sits as a minor competitor to Booking.com, Hotels.com, Airbnb and many others. Friends Reunited missed out on the payday enjoyed by Facebook. The first search engine was not Google and the first smartphone was not an iPhone. Technology investors love a pioneering company, but the real money seems to flow to those that enter the market later.
Back in 2012 I was introduced to Hailo, an app that matched taxi drivers to passengers
wanting a ride. It was brilliant, innovative and incredibly exciting. I used it all the time. It’s
still going, albeit in the name of FreeNow, a re-brand that followed its merger with a similar company called myTaxi. This was driven by the need to compete with a monster business, rich with cash and ambition called Uber. While Hailo took the prize for innovation, Uber stole the market.
Will history repeat itself? Will OpenAI break the pattern or will other artificial intelligence companies profit at its expense?
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