4. Generating Cash With Generative AI

Feb 05, 2023

Five of the most interesting Generative AI companies linked to content creation are OpenAI, Stability AI, Jasper, Runway, and Prisma Labs (Lensa). They form a spectrum – from the viral and controversial Lensa to the non-profit turned kind-of-for-profit OpenAI and the “AI by the people, for the people” Stability AI. And they are connected – one is another’s customer but also a competitor. How do they make money? Are they missing a big opportunity? Overall, this set is a fun study!

Business Models

Here's a simple way to think about business models – what/how/who ‘makes’ and what/how/who ‘sells.’

‘Make One -> Sell Many’ is the most common model in software. You develop a piece of software once and sell it to many customers. The one-time cost of developing that software is high but the cost of selling copies (or subscriptions) is (or should be!) low. All five of these Generative AI companies have that general business model today. The ‘Make One’ could be a foundation model (e.g., GPT-3 by OpenAI) or an application (e.g., Jasper). Although the general business model is the same, these companies differ in products, revenue models, and pricing.

Observations:

An image is worth a thousand words! The price of an image ($0.018 with DALL-E) is like that of a thousand words ($0.02 per thousand tokens or ~750 input words with GPT)
OpenAI GPT charges for input (prompt) words: $0.02 per 750 words. Jasper charges for generated words: $49 per 50K words. Let’s say a ten-word input prompt in Jasper generates a “short” output length of 20 words. Then the Jasper price for 750 input words will be $49*750/(50000*10/20) = $1.47. If a five-word Jasper input generates a “long” 115 words, then it increases to $16.91. So, the Jasper price transformed to input words is $1.47-$16.91 for 750 input words. Could be lower or higher depending on what the input-output word ratio is. In most cases, there is enough margin on top of the $0.02 charged by OpenAI GPT. Jasper uses other models as well, such as GPT-NeoX, BLOOM, etc.
$20 seems to be the magic price - ChatGPT Plus and Jasper Art are both $20/month/user! OpenAI used the Van Westendorp Price Sensitivity Meter to set the price. ChatGPT costs OpenAI single-digit cents per chat.
The Runway app appears more complex than Jasper and Lensa but has the simplest pricing and apparently the lowest revenue! Maybe because of heavier dependency on enterprise users and a narrower use case (video compared to text). Also, the price might be too low – compare Runway’s $12-$28/month/user to Jasper’s $49-$500/month. But Runway seems to be better positioned because it is not dependent on OpenAI or Stability AI.
Lensa downloads are amazing, but will it generate recurring revenue from the same set of users for avatars, or was it a one-hit wonder?

Relationships

All these companies serve you as a customer. Directly, indirectly, or both. OpenAI and Stability AI are two of the few companies building and offering foundation models. But they are also making applications on top. Jasper and Lensa use the foundation models from OpenAI and Stability AI respectively. Runway is unique as it has its own proprietary foundation model and an application on top.

Missed Opportunity

Most companies want to have a direct connection to the end-user, whether that is an individual consumer or an enterprise user. All these companies do. But there are two types of end-users orthogonal to the consumer-enterprise split. Some create content made using Generative AI and others consume that content. None of these companies is bringing those creators and consumers together. That’s a missed opportunity.