There is no technical moat, but that doesn't mean there isn't a moat.
Amazon might be a good analogy here. I'm old enough to remember when Amazon absorbed billions of VC money, making losses year over year. Every day there was some new article about how insane it was.
There's no technical moat around online sales. And lots of companies sell online. But Amazon is still the biggest (by a long long way) (at least in the US). Their "moat" is in public minds here.
Google is a similar story. As is Facebook. Yes the details change, but rhe basic path is well trodden. Uber? Well the juries still out there.
Will OpenAI be the next Amazon? Will it be the next IBM? We don't know, but people are pouring billions in to find out.
A couple other comments touch on the point I want to make, but I feel they don't nail it hard enough: if today you told me you had a website that was 100% technologically identical to Amazon, but you were willing to make slightly less money, you'd still have no products... as a user I'd have no reason to go there, but then without users there is no reason to sell there, so you have a circular bootstrapping issue. That is a moat.
This is very different from OpenAI: if you show me a product that works just as well as ChatGPT but costs less--or which costs the same but works a bit better--I would use it immediately. Hell: people on this website routinely talk about using multiple such services and debate which one is better for various purposes. They kind of want to try to make a moat out of their tools feature, but that is off the path of how most users use the product, and so isn't a useful defense yet.
Amazon as in AWS is possibly a better analogy. What AWS sells is mostly commodity. Their moat is the cost of integration. Once a company has developed all its system around AWS, they are locked in, just because of the integration cost of switching. OpenAI only sells a single component, so the lock in is weaker. But once you have a business a company depends on which has been tested and relies on OpenAI, I can see them thinking twice about switching. Right now, I doubt we are near that stage, so my vote is on no moat yet.
That's fair, but different LLM behave differently, so you would have to redo your testing from scratch if you were to swap the model. I think that would be the primary problem.
Testing for LLMs is an evolving practice but you need to have tests even if you stick with one provider, otherwise you won't be able to swap out models safely within that provider either.
> if today you told me you had a website that was 100% technologically identical to Amazon, but you were willing to make slightly less money, you'd still have no products
It is widely understood that you really can't compete with "as good as". People won't leave Google, Facebook, etc. if you can only provide a service as good as, because the effort required to move would not be worth it.
> if you show me a product that works just as well as ChatGPT but costs less--or which costs the same but works a bit better--I would use it
This is why I believe LLMs will become a commodity product. The friction to leave one service is nowhere near as as great as leaving a social network. LLMs in their current state are very much interchangeable. OpenAI will need a technological breakthrough in reliability and/or cost to get people to realize that leaving OpenAI makes no sense.
> It is widely understood that you really can't compete with "as good as".
Sure you can, that's why there are hundreds if not thousands of brands of gas station. The companies you list are unusual exceptions, not the way things usually work.
Im not sure a gas station analogy really works. I use a gas station out of convenience (i.e. its on my route) and will only go out of my way for a significant difference in price. This means i go to the same gas stations even when there are others that are “as good as” around just because it’s convenient for me. Similarly if i already setup an account with Amazon and currently use Amazon i won’t move to an “as good as” competitor just because its an inconvenience to setup a new account, add billing info, add my address, etc… for no real improvement.
I feel like you (and others) are saying what I'm saying.
I said;
>> There is no technical moat, but that doesn't mean there isn't a moat.
Meaning that just because the moat is not technical doesn't mean it doesn't exist.
Clearly Amazon, Google, Facebook etc have moats, but they are not "better software". They found other things to act as the moat (distribution, branding, network effects).
OpenAI will need to find a different moat than just software. And I agree with all the people in this part if the thread driving that point home.
Moats don't have to be software. Amazon's physical distribution chain is absolutely a moat - trying to replicate their efficiency at marshalling physical items from A to B is a daunting problem for new entrants in the online retail game.
They have been monitoring their GPT Store for emergent killer applications with a user base worth targeting. Zuckerberg's playbook. Nothing yet, because they've been too short-sighted to implement custom tokens and unbounded UIs.
Amazon functions as a marketplace dynamic, which is defensible if done right, as they have shown.
OpenAI right now some novel combination of a worker bee and queryable encyclopedia. If they are trying to make a marketplace argument for this, it would be based on their data sources, which may have a similar sort of first-mover advantage as a marketplace as they get closed off and become more expensive (see eg reddit api twitter api changes), except that much of those data age out, in a way that sellers and buyers in a marketplace do not.
The other big difference with a marketplace is constrained attention on the sell/fulfillment side. Data brokers do not have this constraint — data is easier to self-distribute and infinitely replicable.
Look at Android vs Apple phones in the US. HN tends to really underestimate the impact of branding and product experience. It’s hard to argue anyone’s close to OpenAI on that front (currently).
Not to mention they’ve created a pretty formidable enterprise sales function. That’s the real money maker long term and outside of Google, it’s hard to imagine any of the current players outcompeting OpenAI.
Dropbox and Slack are examples of another possible outcome: capture the early adopters and stay a player in the space, but still have your lunch eaten by big tech suites that ship similar products.
this is probably how OpenAI is going to end up with. there is no clear tech barrier that can't be crossed by competitors. openai came up with all sorts of cool stuff, but almost all of them have seen a peer competitor in just months.
the recent release of deepseek v3 is a good example, o1 level model trained under 6 million USD, it pretty much beat openai by a large margin.
My testing has been very limited, so I don't want to opine too much. If anyone has a differing opinion based on more testing, please share, I'm interested!
So I've been using Deepseek for 3 months with Aider coding assistant. Look up the "Aider LLM leaderboard" for proper test results if you like, in my experience the Deepseek V3 is just as good as Claude at less than 1/10th the price. I can't speak about o1 it is just too expensive to be worth it
OpenAI is going to be beaten on price, wait and see.
I agree it's a bit weaker, but you're still paying $20 + tax for ChatGPT on a monthly subscription (or more). You could switch next month, you might regret it and switch back the month after. You might anticipate that faff and not switch to begin with.
(Sure you might say I'll subscribe to both, $20, $40, it's no big deal - but the masses won't, people already agonise over and share (I do too!) video streaming services which are typically cheaper.)
Amazon retail is a marketplace with marketplace dynamics which what you are describing. They are connecting buyers and sellers. OpenAI is a SaaS company, can’t compare them.
More interestingly to your thread is how does Craigslist supplant print classifieds, which then is challenged if not supplanted by Facebook Marketplace. Both the incumbents had significantly better marketplace dynamics prior to being overtaken.
Why would they have no products? While Amazon Marketplace is important, they'd still have the greatest selection of products if they only had first-party sales. It's a bad analogy. eBay is a better example, as a purely a marketplace.
That’s how it is today, but that was also the case at the birth of e-commerce. Amazon was a large eCom store but many others were successful and switching for price was common. Not so much anymore.
Missing the point though. Amazon isn't Amazon because of its tech (speed, reliability, etc) doesn't matter as much as: inventory (tons of things you can only find there), delivery speed (you can reliably get 99% of the things in a week or less and some of the items get delivered in HOURS) and customer service (you are right by default, you will refunded and get free delivery if you encounter issues). That's the ultimate killer. If a competitor managed to do this, a little marketing to get installed in the customer base's phones will definitely eat Amazon's lunch. Temu has shown big strides but its ethical problems will prevent them from becoming a true threat. A local Temu-like competitor would be a formidable adversary
> Amazon might be a good analogy here. I'm old enough to remember when Amazon absorbed billions of VC money, making losses year over year.
Apparently old enough to forget the details. I highly recommend refreshing your memory on the topic so you don’t sound so foolish.
1. Amazon had a very minimal amount of VC funding (less than $100M, pretty sure less than $10M)
2. They IPO’d in 1997 and that still brought in less than $100M to them.
3. They intentionally kept the company at near profitability, instead deciding to invest it into growth for the first 4-5yrs as a public company. It’s not that they were literally burning money like Uber.
4. As further proof they could’ve been profitable sooner if they wanted, they intentionally showed a profit in ~2001 following the dotcom crash.
Edit: seems the only VC investment pre-IPO was KP’s $8M. Combine that with the seed round they raised from individual investors and that comes in under $10M like I remembered.
This shows that it's not that easy to get the AI right even with the sizable funding available. OpenAIs moat is its actual capacity to provide and develop better solutions.
Facebook has an enormous network effect.
Google is the lynchpin of brokering digital ads to the point of being a monopoly.
Someone else mentioned Amazons massive distribution network.
> There's no technical moat around online sales. And lots of companies sell online. But Amazon is still the biggest (by a long long way) (at least in the US). Their "moat" is in public minds here.
I don't think that's true. I think it's actually the opposite. Global physical logistic is way harder than software to scale. That's Amazon's moat
> “Amazon might be a good analogy here. I'm old enough to remember when Amazon absorbed billions of VC money, making losses year over year. Every day there was some new article about how insane it was.”
Not to take away from the rest of your points, but I thought Amazon only raised $8m in 1995 before their IPO in 1997. Very little venture capital by today’s standard.
That caught my eye too, because VCs never poured "billions" into any one company pre-dot-com bust. Unicorns were notable for being valued at $1B or more, but never raised that much in funding, and this only happened much later, a decade and a half after Amazons IPO - Amazon itself was never a unicorn, its post-IPO capitalization was $300M.
Amazon is famous for making losses after being publicly listed. Also, it was remiss of grandparent to not note that Amazon's losses were intentional for the sake of growth. OpenAI has no such excuse: their losses are just so that they stay in the game; if they attempted to turn profitable today, they'd be insolvent within months.
no, the amazon moat is scale, and efficiency, which leads to network effect. The chinese competitors are reaching similar scales, so the moat isn't insurmountable - just not for the average mom and dad business.
> There is no technical moat, but that doesn't mean there isn't a moat.
The moat is actually huge (billions of $$). What is happening is that there are people/corps/governments that are willing to burn this kind of money on compute and then give you the open weight model free of charge (or maybe with very permissive and lax licensing terms).
If it wasn't for that, there will be roughly three players in the market (Anthropic and recently Google)
> There is no technical moat, but that doesn't mean there isn't a moat.
Gruber writes:
"
My take on OpenAI is that both of the following are true:
OpenAI currently offers, by far, the best product experience of any AI chatbot assistant.
There is no technical moat in this field, and so OpenAI is the epicenter of an investment bubble.
"
It's amusing to me that he seems to think that OpenAI (or xAI or DeepSeek or DeepMind) is in the business of building "chatbots".
The prize is the ability to manufacture intelligence.
How much risk investors are willing to undertake for this prize is evident from their investments, after all, these investors all lived through prior business cycles and bubbles and have the institutional knowledge to know what they're getting into, financially.
How much would you invest for a given probability that the company you invest in will be able to manufacture intelligence at scale in 10 years?
> How much would you invest for a given probability that the company you invest in will be able to manufacture intelligence at scale in 10 years?
What's the expected return on investment for "intelligence"? This is extremely hard to quantify, and if you listen to the AI-doomer folks, potentially an extremely negative return.
> What's the expected return on investment for "intelligence"? This is extremely hard to quantify […] if you listen to the AI-doomer folks, potentially an extremely negative return.
Indeed. And that asymmetry is what makes a market: people who can more accurately quantify the value or risk of stuff are the ones who win.
If it were easy then we'd all invest in the nearest AI startup or short the entire market and 100x our net worth essentially overnight.
That logic applies for AI-cynics rather than AI-doomers — the latter are metaphorically the equivalent of warning about CO2-induced warming causing loss of ice caps and consequent sea level rises and loss of tens of trillions of dollars of real estate as costal cities are destroyed… in 1896*, when it was already possible to predict, but we were a long way from both the danger and the zeitgeist to care.
But only metaphorically the equivalent, as the maximum downside is much worse than that.
> That logic applies for AI-cynics rather than AI-doomers
Fwiw, I don't believe that there are any AI doomers. I've hung out in their forums for several years and watched all their lectures and debates and bookmarked all their arguments with strangers on X and read all their articles and …
They talk of bombing datacentres, and how their children are in extreme danger within a decade or how in 2 decades, the entire earth and everything on it will have been consumed for material or, best case, in 2000 years, the entire observable universe will have been consumed for energy.
The doomers have also been funded to the tune of half a billion dollars and counting.
If these Gen-X'ers and millennials really believed their kids right now were in extreme peril due to the stupidity of everyone else, they'd be using their massive warchest full of blank cheques to stockpile weapons and hire hitmen to de-map every significant person involved in building AI. After all, what would you do if you knew precisely who are in the groups of people coming to murder your child in a few years?
But the true doomer would have to be the ultimate nihilist, and he would simply take himself off the map because there's no point in living.
> or, best case, in 2000 years, the entire observable universe will have been consumed for energy
You're definitely mixing things up, and the set of things may include fiction. 2000 years doesn't get you out of the thick disk region of our own galaxy at the speed of light.
> The doomers have also been funded to the tune of half a billion dollars and counting.
> If these Gen-X'ers and millennials really believed their kids right now were in extreme peril due to the stupidity of everyone else, they'd be using their massive warchest full of blank cheques to stockpile weapons and hire hitmen to de-map every significant person involved in building AI. After all, what would you do if you knew precisely who are in the groups of people coming to murder your child in a few years?
The political capital to ban it worldwide and enforce the ban globally with airstrikes — what Yudkowsky talked about was "bombing" in the sense of a B2, not Ted Kaczynski — is incompatible with direct action of that kind.
And that's even if such direct action worked. They're familiar with the luddites breaking looms, and look how well that worked at stopping the industrialisation of that field. Or the communist revolutions, promising a great future, actually taking over a few governments, but it didn't actually deliver the promised utopia. Even more recently, I've not heard even one person suggest that the American healthcare system might actually change as a result of that CEO getting shot recently.
But also, you have a bad sense of scale to think that "half a billion dollars" would be enough for direct attacks. Police forces get to arrest people for relatively little because "you and whose army" has an obvious answer. The 9/11 attacks may have killed a lot of people on the cheap, but most were physically in the same location, not distributed between several in different countries: USA (obviously), Switzerland (including OpenAI, Google), UK (Google, Apple, I think Stability AI), Canada (Stability AI, from their jobs page), China (including Alibaba and at least 43 others), and who knows where all the remote workers are.
Doing what you hypothesise about would require a huge, global, conspiracy — not only exceeding what Al Qaida was capable of, but significantly in excess of what's available to either the Russian or Ukrainian governments in their current war.
Also:
> After all, what would you do if you knew precisely who are in the groups of people coming to murder your child in a few years?
You presume they know. They don't, and they can't, because some of the people who will soon begin working on AI have not yet even finished their degrees.
If you take Altman's timeline of "thousands of days", plural, then some will not yet have even gotten as far as deciding which degree to study.
I somehow accidentally made you think that I was trying to have a debate about doomers, but I wasn't which is why I prefixed it with "fwiw" (meaning for-what-it's-worth; I'm a random on the internet, so my words aren't worth anything, certainly not worth debating at length) Sorry if I misrepresented my position. To be clear, I have no intense intellectual or emotional investment in doomer ideas nor in criticism of doomer ideas.
Anyway,
> You're definitely mixing things up, and the set of things may include fiction. 2000 years doesn't get you out of the thick disk region of our own galaxy at the speed of light.
Here's what Arthur Breitman wrote[^0] so you can take it up with him, not me:
"
1) [Energy] on planet is more valuable because more immediately accessible.
2) Humans can build AI that can use energy off-planet so, by extension, we are potential consumers of those resources.
3) The total power of all the stars of the observable universe is about 2 × 10^49 W. We consume about 2 × 10^13 W (excluding all biomass solar consumption!). If consumption increases by just 4% a year, there's room for only about 2000 years of growth.
"
About funding:
>> The doomers have also been funded to the tune of half a billion dollars and counting.
> I've never heard such a claim. LessWrong.com has funding more like a few million
"
A young nonprofit [The Future of Life Institute] pushing for strict safety rules on artificial intelligence recently landed more than a half-billion dollars from a single cryptocurrency tycoon — a gift that starkly illuminates the rising financial power of AI-focused organizations.
"
> But only metaphorically the equivalent, as the maximum downside is much worse than that.
Maybe I'm a glass-half-full sort of guy, but everyone dying because we failed to reverse man-made climate change doesn't seem strictly better than everyone dying due to rogue AI
Everyone dying from a rogue AI would be stupid and embarrasing: we used resources that would've been better used fighting climate change, but ended up being killed by an hallucinating paperclip maximizer that came from said resources.
Stupid squared: We die because we gave the AI the order of reverting climate change xD.
Given the assumption that climate change would kill literally everyone, I would agree.
But also: I think it extremely unlikely for climate change to do that, even if extreme enough to lead to socioeconomic collapse and a maximal nuclear war.
Also also, I think there are plenty of "not literally everyone" risks from AI that will prevent us from getting to the "really literally everyone" scenarios.
So I kinda agree with you anyway — the doomers thinking I'm unreasonably optimistic, e/acc types think I'm unreasonably pessimistic.
Will it bring untold wealth to its masters, or will it slip its leash and seek its own agenda.
Once you have an AI that can actually write code, what will it be able to do with its own source? How much better would open AI be with a super intelligence looking for efficiencies and improvements?
What will the super intelligence (and or its masters) do to build that moat and secure its position?
> How much risk investors are willing to undertake for this prize is evident from their investments, after all, these investors all lived through prior business cycles and bubbles and have the institutional knowledge to know what they're getting into, financially.
There are not that many unicorns these days, so anyone missing out on last unicorn decades are now in immense FOMO and is willing to bet big. Besides, AGI is considered(own opinion) personal skynet(wet dream of all nations’ military) that will do your bidding. Hence everyone wants a piece of that Pie. Also when the bigCo(M$/Google/Meta) are willing to bet on it, makes the topic much more interesting and puts invisible seal of approval from technically savvy corps, as the previous scammy cryptocurrency gold rush was not participated by any bigCo(to best of my knowledge) but GenAI is full game with all.
Part of the risk is the possibility that a few key employees find a much more profitable business model and leave OpenAI, while the early investors are left holding the bag. This seems to be a recurring theme in the tech world.
> Part of the risk is the possibility that a few key employees find a much more profitable business model and leave OpenAI,
The fact that you can state this risk means that market participants already know this risk and account for it in their investment model. Usually employees are given stock options (or something similar to a vesting instrument) to align them with the company, that is, they lose[^1] significant wealth if they leave the company. In the case of OpenAI: "PPUs vest evenly over 4 years (25% per year). Unlike stock options, employees do not need to purchase PPUs […] PPUs also are restricted by a 2-year lock, meaning that if there’s a liquidation event, a new hire can’t sell their units within their first 2 years."[^0]
Walmart and Target have tons of warehouse expertise. Amazon’s moat is their software, where they have a far longer head start and they can afford to pay their employees due to AWS and other services’ high margins, as well as executing well on growth resulting in being able to compensate with equity.
Walmart and Target were far better than Amazon at logistics at the beginning, but they couldn’t execute (or didn’t focus on) software development as well as Amazon.
Meanwhile, Amazon figured out how to execute logistics just as good or better than the incumbents, giving them the edge to overtake them.
Walmart and Target already had warehouses, but the end-to-end system you need for 2-day, 1-day, same day shipping, which includes warehouses/trucks/drivers, is not something they had
They were built for people to come to their store, and the website was a second class citizen for a long time.
But that was Amazon's bread and butter. They built that fast-shipping moat as a pretty established company, and the big retailers were caught off guard
Right, which Amazon originally accomplished with huge assistance from expensive contracts with UPS, but they used software (and new hardware) and mobile internet technology to figure out how to reduce their delivery costs by being able to figure out how to incentivize cheaper independent contractors to deliver their packages, rather than expensive UPS union employees.
Walmart has been a tech company since the 80s. The way Walmart got so big is that the created a literal network between stores so they could do logistics at scale. They had the largest database at the time.
Walmart is still the largest company in the world by revenue, with Amazon at its heels, with Amazon's profit beating out Walmart's.
A lot of this thread, I think, is just fantasy land that Amazon is somehow:
1. Destroying Walmart and Target in a way they can't compete.
2. Is more tech savvy than Walmart and Target.
C'mon, read the history of Walmart, it's who put technology into retail.
Just to emphasize this point: Walmart was to the IT revolution what Amazon is to the Internet revolution. They were among the first in the sector to move beyond paper and industrialize IT for operations, which allowed them to scale way faster and way more efficiently than their competition. Walmart's most powerful executives were IT executives, and many of them went on to have very decorated careers, e.g., Kevin Turner was the CIO immediately prior to becoming COO at Microsoft.
Walmart is not an Internet company. It is definitely a tech company. It's just that its tech is no longer super cool.
Good point that Walmart got its edge against incumbents by incorporating advanced technology into their operations.
But for whatever reason, they took their foot off the pedal, and allowed Amazon to use the next step (networking technology and internet) to gain an edge over the now incumbent Walmart.
> 2. Is more tech savvy than Walmart and Target.
The market (via market cap) clearly thinks Amazon has lots more potential than its competitors, and I assume it is because investors think Amazon will be more successful using technology to advance.
> Amazon might be a good analogy here. I'm old enough to remember when Amazon absorbed billions of VC money, making losses year over year. Every day there was some new article about how insane it was.
When was this true? Amazon was founded Jul 1994, and a publicly listed company by May 1997. I highly doubt Amazon absorbed billions of dollars of VC money in less than 3 years of the mid 1990s.
I don't know about vc money but Amazon was well known for spending all revenue into growth and, to my understanding, noone understood why. Why buy stocks of companies that don't make profit?
Nowadays, it's not unusual. Jeff Bezoz was laughed about for it. I think even on TV (some late night show in the 90s).
The talk shows segments are pre-planned to have “funny” quips and serve as marketing for the guests.
I was only a teenager, but I assume there had been lots of businesses throughout the course of history that took more than 5 years to be profitable.
The evidence is that investors were buying shares in it valuing it in the billions. Obviously, this is 1999 and approach peak bubble, but investing into a business for multiple years and waiting to earn a profit was not an alien idea.
I especially doubt it was alien to a mega successful celebrity and therefore I would bet Jay Leno is 100% lying about “not understanding” in this quote, and it is purely a setup for Bezos to respond so he can promote his business.
> “Here’s the thing I don’t understand, the company is worth billions and every time I pick up the paper each year it loses more money than it lost the year before,” says the seasoned talk show presenter, with the audience erupting into laughter off screen.
It is not a good analogy because services like Facebook, Amazon, Instagram depend on a critical mass of users (sellers, content sharers, creators, etc.). With SaaS this is not a crucial component as the service is generated by software, not other users.
Same for OpenAI. Anytime I talk to young people who are not programmers, they know about ChatGPT and not much else. Never heard of Llama nor what an LLM is.
You could have said the same about Netscape in 1997. Noone knew what IE was (and if they did, thought it was inferior) and no one certainly knew what Chrome was (didn't exist). Yet, the browser market eventually didn't matter, got commoditized and what mattered were the applications built on top of it.
Amazon built a bit of a moat too: for example I happen to know that they own a patent on the photography setup that allows them to capture consistent product photos at scale.
Amazon might be a good analogy here. I'm old enough to remember when Amazon absorbed billions of VC money, making losses year over year. Every day there was some new article about how insane it was.
There's no technical moat around online sales. And lots of companies sell online. But Amazon is still the biggest (by a long long way) (at least in the US). Their "moat" is in public minds here.
Google is a similar story. As is Facebook. Yes the details change, but rhe basic path is well trodden. Uber? Well the juries still out there.
Will OpenAI be the next Amazon? Will it be the next IBM? We don't know, but people are pouring billions in to find out.