What Is ChatGPT, and How Does It Make Money?

ChatGPT, the free chatbot released in November 2022 by the artificial intelligence (AI) research company OpenAI, has taken the internet by the proverbial storm. In its first years of existence, ChatGPT has been used to write essays and articles, summarize long texts, explain complicated arguments, write code, translate text, make workout plans, and even create bedtime stories for children.

Some artificial intelligence experts believe that ChatGPT could revolutionize both the way that humans interact with chatbots and AI more broadly. Others have expressed serious concerns about the technology's potential for harm.

What Is ChatGPT and How Does It Work?

ChatGPT is an AI model that engages in conversational dialogue. It is an example of a chatbot, akin to the automated chat services found on some companies' customer service websites.

The technology was developed by OpenAI, a tech research company that has said it is dedicated to ensuring "that artificial general intelligence benefits all of humanity." The "GPT" in ChatGPT stands for "generative pre-training transformer," referring to the way that ChatGPT processes language.

What sets ChatGPT apart from chatbots of the past, is that ChatGPT was trained using reinforcement learning from human feedback (RLHF). RLHF involves the use of human AI trainers and reward models to develop ChatGPT into a bot capable of challenging incorrect assumptions, answering follow-up questions, and admitting mistakes.

To put ChatGPT to the test, Investopedia asked it to "write a journalistic-style article explaining what ChatGPT is." The bot responded that it was "designed to generate human-like text based on a given prompt or conversation." It added that, because it is trained on a data set of human conversations, it can understand context and intent and is able to have more natural, intuitive conversations.

In its response to our prompt, ChatGPT said that its applications could include customer service bots, the creation of content for social media or blogs, and the translation of text from one language to another.

How Does ChatGPT Make Money?

OpenAI launched ChatGPT as a nonprofit in 2015, relying on donations for funding because its founders didn't like the idea of artificial intelligence being used for commercial purposes. Over time, however, the company said "it became increasingly clear that donations alone would not scale with the cost of computational power and talent required to push core research forward, jeopardizing our mission." So, in 2019, it created a for-profit subsidiary overseen by the nonprofit's board of directors.

A lot has changed since then. OpenAI's sales have been rocketing and were reported to have surpassed $2 billion on an annualized basis in December 2023 off the back of the soaring popularity of ChatGPT. This figure is expected to continue soaring in the future as businesses flock to use OpenAI’s technology to adopt generative AI tools in the workplace.

A free version of ChatGPT remains available on OpenAI's website. In addition, the company offers a premium version, ChatGPT Plus, with a subscription price of $20 per month. The free version comes with limited access to data analysis, file uploads, vision, web browsing, custom GPTs, and the latest system: ChatGPT-4.0. And management currently has no plans to make money off non-paying users through selling ads.

In addition, the company sells its application programming interface on a subscription basis to organizations looking to use the model for their own purposes, according to Investopedia's query to ChatGPT itself.

Despite rising substantially, revenues haven't been enough to cover expenses. ChatGPT continues to be loss-making because of the huge costs associated with building and running its models. And with continued investment needed to develop more sophisticated models in the future, this isn't expected to change anytime soon.

That means the company will continue to need to raise more money. OpenAI's biggest backer Microsoft has pledged up to $13 billion of funding. There have also been stock sales, the most recent of which valued OpenAI at $86 billion.

Potential Benefits of ChatGPT

While chatbots have existed for some years, ChatGPT is viewed as a significant improvement on the intelligibility, fluidity, and thoroughness of prior models.

As mentioned, ChatGPT has numerous potential uses. They range from relatively direct, chatbot-type functions to much more obscure applications, and it is likely that users will explore a host of other possible ways to utilize this technology in the future. Recent additions include the ability to upload photos for the bot to analyze and real-time language translations.

One demonstration of the sophistication of ChatGPT provided by OpenAI includes a prompt that was designed to trick the bot: asking about when Christopher Columbus (supposedly) came to the United States in 2015. ChatGPT's response easily avoided the trap, clarifying that while Columbus did not come to the U.S. in 2015, it can posit some of the ways he may have reacted to his visit if he had.

Disadvantages and Dangers of ChatGPT

OpenAI itself lists some of the limitations of ChatGPT as it currently exists. They include ChatGPT sometimes writing coherent but incorrect statements, making assumptions about ambiguous queries, and tending to be excessively verbose.

In the first weeks of its public release, ChatGPT made headlines for its alleged use among students in creating AI-written papers and other assignments. Concerns about the misuse of ChatGPT for academic cheating grew large enough that a computer science student at Princeton University created an app designed to identify and expose writing created by the bot.

In September 2023, the Authors Guild and more than a dozen prominent fiction writers—including Jonathan Franzen, John Grisham, George R.R. Martin, Jodi Picoult, George Saunders, and Scott Turow—filed a lawsuit charging OpenAI with copyright infringement. It alleged that in order to train ChatGPT, the company had copied the authors' works "wholesale, without permission or consideration."Perhaps more ominously, the suit pointed to the potential for AI to "spit out derivative works," mimicking and competing with the human authors and potentially depriving them of their livelihood.

Several newspapers have also sued OpenAI and Microsoft for copyright infringement.

To some observers, ChatGPT poses additional and potentially even more serious risks. For instance, analysts have predicted that the bot could be used to make malware and phishing attacks more sophisticated, or that hackers may utilize the technology to develop their own AI models that may be less well-controlled. As concerns about misinformation have proliferated, some are especially sensitive to the possibility that ChatGPT could be used to create and share convincing but misleading material of a political nature.

Worse still are concerns that AI might ultimately take on a life of its own, leading even to human extinction—a worry shared by many legitimate scientists and industry experts, not simply a crackpot fringe.

Inner Turmoil

OpenAI's reputation also hasn't been helped by inner turmoil, fueled in part by a clash between non-profit and for profit values.

In a fast-moving chain of events characterized by the New York Times as, "a fight between dueling visions of artificial intelligence," OpenAI's board fired Sam Altman, the company's CEO and its most public face, on Nov. 17, 2023, only to restore him to the position less than a week later.

"Mr. Altman's departure follows a deliberative review process by the board, which concluded that he was not consistently candid in his communications with the board, hindering its ability to exercise its responsibilities," the company said in a statement on Nov. 17. "The board no longer has confidence in his ability to continue leading OpenAI."

Within a matter of hours, Altman appeared to have been hired by Microsoft, a major investor in OpenAI, and virtually the entire staff of OpenAI threatened to resign unless he was rehired. The board relented on Nov. 22, and all but one of its members left the nonprofit. Altman was officially reinstated as OpenAI's CEO a week later.

The upshot of the turmoil, according to many industry commentators, was that the subsidiary's profit motive had won out over the nonprofit board's high-minded mission of serving "all of humanity."

The Bottom Line

ChatGPT is the leading chatbot technology available today. But, not surprisingly, given all of the money likely to be made from artificial intelligence, numerous competitors have developed alternatives to challenge its dominance.