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Inflection's implosion and ChatGPT's stall reveal AI's consumer problem

Alistair Barr   

Inflection's implosion and ChatGPT's stall reveal AI's consumer problem
  • Tech investor Garry Tan's concerns about consumer-facing AI chatbots are being realized.
  • Inflection AI's Pi chatbot failed to gain massive scale. ChatGPT web growth has stalled.

Last year, Garry Tan, one of the most successful tech investors in Silicon Valley, questioned the business case for consumer-facing AI technology like ChatGPT.

"Personally I am short chat interface and long on SaaS and Enterprise implementations that use LLMs," he tweeted back in July.

Less than a year later, his concerns are coming true.

This week, startup Inflection AI partially imploded. The startup's two main founders decamped to Microsoft, taking a sizable team with them.

Inflection raised more than $1 billion last year at a $4 billion valuation, with backers including Bill Gates, Eric Schmidt, and Nvidia.

Inflection's main product was Pi, an AI chatbot for consumers that provided emotional support and advice. The startup is now "exiting its Pi consumer chatbot effort," according to Bloomberg, less than a year after it launched. (Bloomberg corrected this later, saying Inflection will "keep running Pi, for now. That might change in the future." You get the idea, though: Not good.)

What remains of the startup is pivoting to try an enterprise business model, where custom AI models are crafted, tested, and fine-tuned for commercial customers.

Earlier this month, Inflection said Pi had 1 million daily average users. This may sound like a lot, but in the world of online consumer businesses, it's a disaster — especially for a company supposedly worth $4 billion. For context, X has more than 200 million DAUs, despite chaos since Elon Musk took over. Instagram has more than 500 million DAUs.

A worrying phenomenon

Pi's demise illustrates a worrying phenomenon for any company trying to make generative AI work for consumers rather than corporate customers.

Either these products are not catching on at the scale required for a successful consumer digital business, or there isn't yet a clear way for the services to generate significant revenue and profit.

ChatGPT is the most successful AI chatbot for consumers so far, by a wide margin. But even this service has stalled.

Soon after ChatGPT launched in November 2022, monthly visits to its website soared to 1.8 billion. Since May 2023 though, this has flatlined or even fallen, according to Similarweb. This data excludes the ChatGPT app and other related services, but the trend is notable.

Similarweb data also shows that other consumer-focused AI chatbot-style services are struggling to gain the massive scale needed to challenge internet giants like Google and Meta.

A Similarweb report from earlier this month shows that chatbots from startups Character.ai, Perplexity AI, and Anthropic lag way behind in terms of web visits.

Anthropic's Claude chatbot had about 20 million web visits in February, down from August 2023. Perplexity had roughly 50 million web visits last month, down from November 2023, according to Similarweb data.

OpenAI's enterprise business

Even though ChatGPT still has many consumer users, OpenAI is leaning more into enterprise businesses. It makes a lot of its money these days from platform services, such as giving outside developers paid access to its powerful AI models.

OpenAI's models are also the basis for several of Microsoft's new paid enterprise AI tools.

"Our partnership with Microsoft is grounded in leveraging Azure supercomputer infrastructure built for OpenAI to power our research and train our next-generation models — a core part of our mission," OpenAI told Bloomberg this week. "We will also continue developing useful AI products like ChatGPT aimed at widely distributing the benefits of AI and driving industrywide innovation for everyone."

That's not a particularly compelling endorsement of the chatbot consumer business model.


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