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Large Language Models are becoming a commodity. We all know it.

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So if you’re a foundational model company, what do you do?

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You build a defensible business around your model. You build your moat.

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Google famously said they have no moat, “and neither does OpenAI.” But we’ll see why that view is too narrow.

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Not only does OpenAI have the best publicly available AI models, but they are executing an impressive business that’s leading the adoption of AI.
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OpenAI’s recently shared metrics​

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In this post we’re going to take a strategic view at the masterclass OpenAI is putting on building a defensible business through their product, GTM, and operational execution - all while their core product becomes a commodity.

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Thanks @mahinckley for this blog posts inspiration

OpenAI’s Moat

A "moat" refers to competitive advantages that protect a business from competitors.
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Moats have two key qualities:

1. They give a business an unique advantage
2. They are hard to copy
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For example, in the early days of Snapchat, their technology was not a moat. Facebook easily copied them. Their moat was branding, willingness to take big risks and advertising contracts.

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To analyze OpenAI’s moats, we’ll combine Elad Gil’s Defensibility & Competition framework and OpenAI’s business footprint.

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OpenAI's top moats (much more detail in the full post below)

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7. Speed - They’re able to run consumer products, partnerships, enterprise plays, research teams, investment funds, and international expansion with near 100% success rate (plugin store is the only blemish, but if you only put out products that succeed then you aren’t shipping enough).

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6. Sales - They publicly mentioned contracts with Moderna, Klarna, Harvey, Oscar, Zelma, JetBrains, and Superhuman and state that 92% of Fortune 500 customers work with them.

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5. Data & System of record - A unique advantage to OpenAI is the sheer volume of data coming through ChatGPT and their API logs. More data means they are able to understand user needs better, train their models with addition human-generated data, and quickly get statistical significance on new products.

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4. Deals - OpenAI’s Apple Partnership (to be announced) to power Siri would be a major partnership. The value is not only being a major provider of LLM services to a massive hardware provider, but also the data that OpenAI will get in exchange.

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3. Brand - To many Fortune 100 companies (and really the general public), OpenAI and ChatGPT are the face of modern AI and that's worth a lot.

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2. Building a ton of product - Building a ton of product can be your moat. Peter Welinder (VP Product) has a lot to do with this. See his talk at LLM bootcamp for more on product @ OpenAI.

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1. Research Culture Execution - On 20VC Harry asks Sam what are the key pieces that make OpenAI great. Sam’s answer: research talent + research culture. This is the tailwind that drives all other initiatives.

​Read the full post here​

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Greg Kamradt

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