Price War Erupts: OpenAI Launches Affordable Products, Intensifying AI Model Competition

Recently, OpenAI has unveiled its new artificial intelligence model, GPT-4o mini. This latest offering is significantly lighter and comes at a much lower price compared to previous models. Analysts believe this move intensifies the already fierce competition among AI model providers. Lately, the price war in China’s large AI model sector has escalated. Since last year, OpenAI has enacted multiple price reductions, with the fees for the GPT-4o mini dropping by an astonishing 99% compared to the GPT-3 from two years ago. Similar products released by companies like Google and Meta are also in the same price range.

In China, ByteDance reduced the pricing for its main model to under 1 yuan per million tokens in May. Following suit, major firms like Alibaba, Baidu, and Tencent have announced significant price cuts or made their models available for free. Analysts suggest that this aggressive pricing reflects limitations in the capabilities of current AI models. Companies that once focused on larger and more powerful models are now shifting toward smaller models, sacrificing some performance for faster response times and lower costs.

Despite this price competition in the AI sector, many companies have yet to see substantial profitability. A report by The Wall Street Journal in April highlighted that generative AI startups raised a total of $21.8 billion last year; however, most have struggled to establish viable business models for profitability. In March, Sequoia Capital estimated that generative AI startups spent over $50 billion on Nvidia chips in a year, while their total annual revenue amounted to just $3 billion.

On a brighter note, some companies have achieved noteworthy success in the generative AI domain. For instance, Accenture reported over $900 million in revenue from related projects in its latest earnings analysis. IBM also noted in its April earnings report that its consulting division earned more than $1 billion from generative AI-related services. Additionally, the Boston Consulting Group anticipates that 20% of its revenue in 2024 will come from projects related to generative AI.

This shift in the market not only underscores the ongoing rivalry among AI providers but also highlights the evolving landscape of business opportunities in the AI sector.