OpenAI’s latest model will change the economics of software

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Subscribe to enjoy similar stories. When OpenAI announced a new generative artificial-intelligence (AI) model, called o3, a few days before Christmas, it aroused both excitement and scepticism. Excitement from those who expected its reasoning capabilities to be a big step towards superhuman intelligence.

Scepticism because OpenAI did not release it to the public and had every incentive to overplay the firm’s pioneering role in AI to curry favour with Donald Trump, the incoming American president. Yet since then one point of consensus has emerged. The model, as well as its predecessor, o1 (o2 was skipped because it is the name of a European mobile network), produces better results the more “thinking" it does in response to a prompt.

More thinking means more computing power—and a higher cost per query. As a result a big change is afoot in the economics of a digital economy built on providing cheap services to large numbers of people at low marginal cost, thanks to free distribution on the internet. Every time models become more expensive to query, the zero-marginal-cost era is left further behind.

Investors value OpenAI like a tech darling: it is worth $157bn, going by a recent fundraising. They hope that thanks to the success of products like ChatGPT, it will become the next trillion-dollar giant. But the higher costs of state-of-the-art models, as well as other pressures from suppliers, distributors and competitors, suggest model-making may not confer the monopoly-like powers enjoyed by big tech.