What companies can learn from OpenAI’s Purple Cow Strategy
The key factors leading to OpenAI's success you need to know
Everyone is talking about ChatGPT and OpenAI, the company behind it. That’s no surprise to any of you. What I’d like to do here is explore why OpenAI was so successful, setting records by reaching 1 million users in 5 days and 100 million users in 2 months. My claim is that OpenAI used what marketing guru Seth Godin calls the “Purple Cow” approach.
The Purple Cow Approach
The old approach to marketing a new product was to create a trusted offering, spend a lot of money to advertise it, thereby attracting more customers who bought more of the product, which then gave you more money to advertise (see graphic below).
Godin’s Purple Cow* approach is starkly different. Instead of taking money and putting it into advertising, investments are made in making a remarkable product (the Purple Cow). Amazed by the product, buyers flock to it and tell others who then buy it. This brings in more money to reinvest in making the product even more remarkable. Apple is a great example of a company that does this well.
* Why “purple cow”? Black and white cows, brown cows, and black cows are not remarkable. But a purple cow…that would be remarkable.
OpenAI’s Purple Cow Execution*
Greg Brockman, OpenAI’s President, Chairman and Co-Founder, explained why ChatGPT has been so successful in this SWSX interview with Laurie Segall. It’s a playbook many tech companies have tried but none as successfully as OpenAI. Brockman listed three reasons, all around ChatGPT not only being incredibly useful but more so it being extremely accessible:
People can “talk” to ChatGPT naturally. No special skills (e.g. coding) are required, so anyone who can type could use it.
Like Google Search, it has an very clean and simple user interface (Midjourney, are you listening?).
It was made free for everyone to use (you can pay $20/month for premium usage but the free version is available to all).
Wharton Professor Ethan Mollick echoes Brockman’s reasons for the success of ChatGPT in this piece.
1.It was widely released to individuals, effectively for free, and was the fastest technology to reach 100 million users.
2.It required no addition technology, platform, or process to be effective.
3.There was no organizational advantage in adoption. No company had a chance to try the technology first and build out an instruction manual, there was no easy way (and many barriers) to using the technology as part of a team or organizational setting. Anyone could discover how to use it in the work, and could tell people, or not, about how they were adopting it.
4.Early signs were that it makes an immediate difference in personal productivity.
But Wait! There’s More!
If OpenAI had only done the above, that would be amazing enough. But the strategy was more far-reaching than that.
OpenAI essentially used the fast adoption of ChatGPT as a means of attracting other firms to build off the product. This has happened in multiple ways. Large firms like Microsoft, Salesforce, Stripe, Instacart, Shopify, Bain and many others have integrated ChatGPT functionality into their products. Microsoft’s integration of ChatGPT into Bing and Office alone will have huge reach. Offering the ChatGPT API has made the ability to integrate its new function in a wide array of offerings. On top of that, OpenAI has enabled plug-ins to other software products to further increase its use.
What Does This Mean Financially?
OpenAI makes some money charging users $20 for the premium service but I doubt that amounts to much of their revenue. If it was, they could never recoup the massive investment required to make ChatGPT in the first place. The real money comes from other firms integrating OpenAI into their products and that turns into not only revenue but more importantly, profit.
Roman statesmen Marcus Tullius Cicero said, “The sinews of war are infinite money.” The same is true of AI.
Some of the major costs of creating and running a large language model like ChatGPT include:
The compute power needed to develop these systems
Developing the algorithms that drive the output
The compute power needed to respond to the queries from users
The first two costs are huge up front but once the product is built and in use, the computing power needed to respond to queries becomes enormous. A response by ChatGPT was several times more expensive for OpenAI to fulfil than a search request by Google and usage was growing fast.
By having other companies integrate ChatGPT into their products, OpenAI not only receives revenue but it offloads the processing expense to the other companies. It’s the best of both worlds.
Of course, the other companies could run the requests on Microsoft’s Azure platform but that’s a win for OpenAI’s partner and only increases its value as an ally.
OpenAI’s Purple Cow approach has given ChatGPT a vast lead in terms of usage and brand recognition. By making a remarkable product that is easy to use and then attracting large and small firms alike to merge it into their offerings, OpenAI has made itself the de facto platform for generative AI. At this point it looks like OpenAI may reign supreme for a very long time.