OpenAI Issues ‘Code Red’ as AI Rivals Gain Ground

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OpenAI declares code red in a memo to employees as its lead in the AI race narrows. Plus, Democrats hope a tight special election in Tennessee today can flip a consistently Republican district in their favor.

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And what will Disney look like without Bob Iger? We've got the inside scoop on the top contenders jockeying to succeed him. It's Tuesday, December 2nd. I'm Caitlin McCabe for The Wall Street Journal, and here is the AM Edition of What's News. The top headlines and business stories moving your world today. The AI arms race is continuing to accelerate with OpenAI Chief Executive Sam Altman launching the latest salvo overnight. In an internal memo late yesterday, he told employees that the company was declaring a code red effort to improve the quality of ChatGPT. It's the clearest indication yet of the pressure OpenAI is facing from competitors as its lead in the industry narrows. Journal reporter Berber Jin covers the AI race and says that Altman has grown particularly concerned about Google, which released a new version of its Gemini AI model last month. Berber, this seems like a pretty urgent declaration from OpenAI. Have we seen the company issue something like this before?

Berber Jin (2:09)

This is the first time we've seen OpenAI so forcefully sound the warning call around ChatGPT. Ever since ChatGPT was first launched back in November 2022, the company has basically seen breakneck growth on the product. But I think for the first time now, OpenAI feels a lot of pressure mainly from Google, which has seen users flock to its new Gemini app. They have a new image generator called Nano Banana, which has really put Gemini on the map. And last month, they launched a very powerful AI model that actually beat OpenAI's models on several industry benchmarks. So Google is also integrating Gemini into their search products and to various other business lines that they have. And OpenAI is also facing competition from Anthropic, which is its startup rival. Anthropic is gaining a lot of ground amongst business customers. They're probably the tool of choice now for selling AI to big companies and coders as well. So yeah, I think OpenAI is definitely facing pretty intense competition from all aspects of its business right now.

Caitlin McCabe (3:22)

What does this Code Red actually mean in practice?

Berber Jin (3:25)

So the company has three different color designations for the severity of a particular business problem they face. Red being the most severe one. So it's a pretty big warning alarm that Altman has raised by elevating it to Code Red. Altman is delaying the launch of other products that he's advertised heavily in recent months. He's asking employees to move, temporarily reassign to work on improving the Chat-CHBT experience. And the internal memo that we saw really laid out in stark terms areas that OpenAI feels like they need to do better on. They want to improve the speed and the reliability of Chat-CHBT. They want to make Chat-CHBT feel more personal. They want image generation features inside Chat-CHBT to be better. And he mentions Google explicitly in the memo. So I think we have a really good sense from our reporting of just how concerned Altman is and where he thinks OpenAI needs to go in terms of improving Chat-CHBT in order to stay ahead in the AI race.

Caitlin McCabe (4:30)

Berber, there have been a lot of concerns around AI valuations recently. How do you think this Code Red will be interpreted by investors?

Berber Jin (4:39)

I think investors are going to be nervous.

So many public tech companies, Microsoft, Oracle, NVIDIA, a lot of the gains in those stocks have been based off of these massive computing deals that OpenAI has signed. In order for OpenAI to make good on those computing deals, they need to be able to continue growing revenue at exponential rates. By their own projections, they say they need to get $200 billion in revenue by 2030 in order to turn a profit. They're on track to make around $13 billion this year. We can expect Google to be much more aggressive in how it rolls out its AI products and to continue mounting a big challenge to OpenAI. So there is this really big question of whether OpenAI can respond. In five years, this could be just a minor hiccup or could potentially be the beginning of a much tougher road ahead for the company.