OpenAI's Free Model May Pose A Challenge To Its Growth, Says Analyst Pierre Ferragu: 'Where Is The S-Curve?'

OpenAI’s decision to offer its foundational model for free might hinder its growth, according to a prominent analyst.

What Happened: Pierre Ferragu, an analyst at New Street Research, took to social media platform X, to share his thoughts on OpenAI’s recent update. Ferragu highlighted three key points:

1) The foundational model is competitive and offered for free, which could make it difficult for OpenAI to charge for its services and grow.

2) OpenAI’s focus on entertainment use cases might indicate a strategy to capture a share of the consumer audience.

3) Despite having a user base of 100 million, Ferragu raised concerns about the lack of an S-curve, a graphical representation of the adoption of new technology. “Where is the S-curve?” he wrote.

My immediate take on the ongoing #OpenAI update:
1) All free. Foundational model is competitive. Tough to charge & grow?
2) Focus on inconsequential entertainment use cases. Fight for share of consumer audience first?
3) Still 100m users. Where is the S-curve?

— Pierre Ferragu (@p_ferragu) May 13, 2024

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Why It Matters: OpenAI’s decision to offer its foundational model for free comes amid a series of strategic moves in the AI industry. Just a day before OpenAI’s update, the company unveiled GPT-4o, a more efficient and cost-effective version of its AI model, GPT-4. This new model is trained on extensive internet data and is designed to handle text, audio, and images in real time more effectively. It also offers features that were previously limited to paid subscribers.

Meanwhile, OpenAI’s rival Anthropic, backed by Google and Amazon, has been making strides in the European market, introducing its Claude chatbot and subscription plans. This move is part of Anthropic’s strategy to expand its user base and revenue.

These developments have led to speculation about the potential impact on Google’s search business. Prominent tech analyst Gene Munster has predicted that OpenAI could pose a significant challenge to Google in the search business, despite its ties with Microsoft. Munster’s forecast comes on the heels of Apple’s potential partnership with OpenAI.

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