--- title: "AI Startups Are Already Running Into Some Serious Problems" description: "Less than a year into the AI boom and startups are already having to grapple with what may become an industry reckoning." date: "2023-08-30" modified: "2023-08-30" authors: - name: "Noor Al-Sibai" job_title: "Senior Staff Writer" link: "https://futurism.com/authors/nooralsibai" url: "https://futurism.com/the-byte/ai-startups-problems" categories: - "Artificial Intelligence" tags: - "ai industry" - "chatgpt" - "Startups" - "the digest" --- # AI Startups Are Already Running Into Some Serious Problems ![Less than a year into the AI boom and startups are already having to grapple with what may become an industry reckoning.]() *Robot being assembled, illustration \Image: VICTOR HABBICK VISIONS/SCIENCE PHOTO LIBRARY via Getty Images\* ## Red Flags Less than a year into the [AI boom]() and startups are already grappling with what may become an industry reckoning. Take Jasper, a buzzy AI startup that [raised $125 million]() for a valuation of $1.5 billion last year — before [laying off staff]() with a [gloomy note from its CEO]() this summer. Now, in a [provocative new story](), the *Wall Street Journal* fleshes out where the cracks are starting to form. Basically, monetizing AI is hard, user interest is leveling off or declining, and running the hardware behind these products is often very expensive — meaning that while the tech *does* sometimes offer a substantial "wow" factor, its path to a stable business model is looking rockier than ever. ## Closed AI Underlying it all is the OpenAI-shaped elephant in the room. The company's game-changing chatbot's release in November 2022 brought on some major magical thinking on the part of investors who hoped that the burgeoning technology's commercial value "would materialize at light speed," longtime AI investor and partner at the VC firm Index Ventures Mark Goldberg told the *WSJ*. Now that wellspring of optimism is coming back to haunt them, as even the OpenAI chatbot's [usage seems to be plateauing or even declining](). Take Midjourney and Synthesia, two more brand name AI startups where, as the *WSJ* points out, data from the analytics platform Similarweb shows traction flatlining (the latter, though, [raised a cool $90 million]() in June thanks to backing from [Nvidia]().) Adding to their woes, the market is lousy with free offerings — a perfect illustration being ChatGPT — and users have been hesitant to shell out for a paid version. ## The Upshot That's not to say the whole ship is sinking. OpenAI is [slated to generate $1 billion in revenue]() over the next year, offsetting at least some of the [staggering cost of running ChatGPT](). But while Google and Microsoft have the resources to lose money for years, and OpenAI has a premier product that went massively viral, it's not clear how much oxygen that's going to leave for the Jaspers of the world. What's left, as Goldberg put it, is "a shallow trough of disillusionment" in the AI space — and the path forward seems to get murkier by the day. **More on the AI industry:** [*AI's Dirty Secret: Poor People in the Developing World Are Doing Most of the Work*]() ## Author At Futurism, I've often been drawn to unpacking the narratives that underlie technological, scientific and medical progress, with a special interest in areas of conflict and ambiguity that end up setting agendas and steering the fates of both elites and the hoi polloi. I'm a committed generalist, but I often find myself returning to work involving NASA and the private space sector, the effects of AI on media and society, and the mechanics of the pharmaceutical industry, with a specific focus on the spread of GLP-1 drugs like Ozempic and Wegovy. Prior to Futurism, I worked for publications ranging from Media Matters and Truthdig to Raw Story and Bustle. I'm also the author of "Myspace Scene Queens," a 2024 title in Instar Books' acclaimed "Remember the Internet" series. My work at Futurism has been cited by outlets including the New Yorker, Slate, Nieman Lab, the Verge, the MIT Technology Review, the Sunday Times, and the Daily Beast. I grew up in North Carolina, attended the University of North Carolina at Asheville, and now live in Brooklyn, New York. In my free time, I'm an avid reader and music fan; you can probably find me at a local poetry reading, concert, underground rave, or DJ set. I'm the proud parent of an ineffable orange cat named Mee-Mow. ### Author social links [Bluesky]()