This Is How OpenAI Goes Broke — ft. Sebastian Mallaby

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**Ed Elson** (1:26)
Welcome to Prof G Markets. Cracks are forming in the OpenAI story. Last week, the company reportedly proposed giving the US government a 5% stake, worth roughly $43 billion, as a way to share the upside of AI with the public. Critics, however, argue it would amount to a government bailout and see it as a troubling signal for both OpenAI and the broader AI boom. That news came after reports that OpenAI had pushed back its IPO plans until 2027, adding to concerns about the company's financial position. So we wanted to speak with someone who has spent years studying the history of AI and who also believes that OpenAI could run out of money in the near future. Sebastian Mallaby is a prominent journalist, author, Pulitzer Prize finalist, and Senior Fellow at the Council on Foreign Relations. And today he's joining us to discuss what is next for OpenAI, what is next for the AI industry, and what investors should be watching. Sebastian, thank you so much for joining me on the show. I'd love to start with an article you wrote back in January that was titled, This is What Convinced Me OpenAI Will Run Out of Money. And you said back then, quote, My bet is that over the next 18 months, OpenAI runs out of money. We've been seeing a lot of red flags since then, the delaying of the IPO.
Later, we saw this proposal for the US government to take a stake in the company.
I guess I'll just start with what do you make of the recent news and do you hold to your prediction?

**Sebastian Mallaby** (3:06)
Yeah, I do hold to my prediction. Back in January, the burn rate was just crazy. So that although OpenAI had good products and quite a lot of traction, 900 million consumers, they won't be able to charge money for the product. Like 5 percent of the retail consumers were actually paying. If you look at a chart of where these users are, the US is the number two market, India is first, the next three are Brazil, Indonesia and so forth. So these are not rich consumers. You can't charge them very much money. So they had a business model that imagined that they could throw money in all directions.
Collaboration with Johnny Ive to have a new form factor which would supply the iPhone, serving Sora video generation models and all this stuff, all of which is very expensive. Yet the revenue side simply wasn't there. So the burn seemed to me to be totally unsustainable. Even though Sam Altman is a magician when it comes to raising money, he wasn't going to be raising $660 billion, which is what the internally projected burn rate was for the next five years when you look to the documents back in January. Now, since then, what's happened is some good news, because OpenAI I think has recognized that it had to get the burn rate down. It's pulled out of a bunch of data center building products, Stargate, all that stuff. It's canceled Sora, the video generation model, which was a total money loser. It's tried to impose some order on the chaotic management, but it's only been half successful. In the meantime, OpenAI is squeezed between Anthropic, which is much better at the frontier enterprise applications like coding assistance and cyber security stuff and agentic stuff. And then on the other hand, it's squeezed by the Gemini model from Google DeepMind, which has now reached more retail consumers and is way better at monetizing from that because Google has plugged AI into its search advertising business, and that business is now doing more revenue than ever.