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The Takeaway

For three years, OpenAI has generated most of its revenue from people paying $20 a month for subscriptions to ChatGPT. This year, it is forecasting a massive shift, expecting a cheaper, ad-supported tier will both draw new users and cause tens of millions of its paying subscribers to downgrade, according to previously undisclosed projections.

The company’s hope is that it will make more money by selling ads shown to more users than relying on the existing flagship monthly subscription service, which is called ChatGPT Plus.

OpenAI at the start of this year forecast that consumer subscribers to ChatGPT Go, which costs $8 a month in the U.S. and around $5 monthly in other countries such as India, would surge about 36 times to 112 million this year. As a result, leaders have projected that the number of subscribers to ChatGPT Plus will fall 80% to about 9 million. Users of the most expensive Pro plan will double but will still make up less than 1% of the total, the forecasts said.

The company still sees total revenue more than doubling this year, to $30 billion, and hitting $284 billion in 2030. By 2030, OpenAI projects that ads will be the single biggest revenue driver of its business, generating about $102 billion, or about 36% of its total revenue that year.

The forecasts show just how much OpenAI is dependent on consumers, notwithstanding a public push it made this year to court large companies that have flocked to rival Anthropic.

Advertising growth is paramount after the company missed an internal revenue target in the first quarter. That miss, first reported by The Wall Street Journal, sent shares of OpenAI cloud partners CoreWeave and Oracle down 6% and 4%, respectively, on Tuesday.

OpenAI said Tuesday that its consumer and enterprise businesses “are firing on all cylinders.”

The company is looking to advertising to lift revenue as it faces increased competition for consumers from Alphabet-owned Google and its Gemini chatbot.

“With Alphabet in this game with Gemini, the majority of Gemini users are using it for free,” said analyst Michael Nathanson of research firm MoffettNathanson. Alphabet is willing to give away Gemini for free because it already has a large ad business, he said. “It’s going to be a challenge to compete with Alphabet.”

Currently, only about 5% of OpenAI’s more than 920 million weekly active users pay for a subscription. Now the company is hoping more will sign up for the low-priced subscription. ChatGPT Go, which launched in India last August and worldwide in January, offers more messages and more access to additional features, such as its flagship model, than the free offering, while also showing ads.

The company expects Go subscribers will make up 92% of all paying subscribers by the end of this year—up from just 7% last year. But much of that growth will come from users who migrate from more expensive subscriptions. Subscriptions to the Plus plan are expected to do the exact opposite—going from 92% to 7% of the total—showing how much of that growth will come from migration to the cheaper subscription. Altogether, it expects consumer subscribers to more than double this year, to 122 million—and to hit 306 million in 2030.

As more people flock to the cheaper subscription, OpenAI expects the average subscription revenue per user to drop from about $23 a month last year (or about $271 annually) to under $12 next year (or $141 annually). At the same time, annual advertising revenue per user will rise from nothing last year–since it hadn’t launched the ads business yet–to over $3 next year and about $59 per user in 2030, it projects.

Meta Platforms, which generates a majority of its revenue from ads, had an annual average revenue per user of $57 across its family of apps last year.

OpenAI is following a playbook similar to that of streaming companies such as Netflix, which introduced a cheaper, ad-supported tier in 2022. Netflix’s introduction of ads, along with a crackdown on password sharing, helped drive increased subscriber—and total revenue—growth.

The forecasts assume OpenAI will be able to quickly attract advertisers. It just began an advertising pilot in February and was generating $100 million in annualized revenue in late March. But it expects advertising to generate about $2.4 billion in revenue this year and to quadruple next year, to nearly $11 billion, The Information previously reported.

OpenAI made these projections after it late last year declared a “code red” to focus on improving its flagship ChatGPT. Since then, the company has killed off some efforts—such as its stand-alone video app, Sora—and scaled back its shopping plans. Instead, it envisions ChatGPT as a superapp that will include coding and the Atlas browser.

It’s likely the company is expecting big growth in the lower-priced tier because much of its consumer growth happens overseas. About 90% of weekly active users are outside the U.S., with India, Brazil, Germany, Indonesia and France the five biggest markets outside of the U.S.

Additionally, 70% of ChatGPT Plus subscribers are outside the U.S., and Brazil, Germany, France, Japan and the U.K. are the biggest markets by subscribers outside of the U.S., according to the forecasts. As a result, it’s likely that most of the cheaper plan subscribers will be from these countries.

The company also has been boosting its marketing campaigns in the U.S. OpenAI this year spent millions on Super Bowl advertising, according to Adweek, using the catchphrase of “You can just build things,” a reference to its coding agent, Codex. The company also has plastered billboards across major cities, though these messages have not focused on the $8 tier.

More aggressive marketing of the $8 plan could pressure other companies to change their pricing. Since ChatGPT started charging for subscriptions in February 2023, OpenAI’s $20 a month price has become a benchmark for AI subscriptions such as Perplexity and Anthropic, which are both priced at $17 per month for their Pro plans.