OpenAI mess exposes the dangers of vendor lock-in for startups


Ladder inside box with person on the outside having escaped.
Image Credits: Colin Anderson Productions pty ltd / Getty Images

If you looked at OpenAI prior to Friday afternoon, it had everything an enterprise buyer (and, for that matter, an investor) could possibly want in a startup: an absolutely killer product in ChatGPT, a rock star CEO and huge potential future revenue.

It looked as stable as any startup could possibly be — until it wasn’t. While the situation remains fluid, it appears that CEO Sam Altman is prepared to drive his tour bus to Microsoft, taking co-founder Greg Brockman and most of his employees with him.

When the shit hit the fan Friday, suddenly all the dangers that vendor lock-in represents were on display, and when the soap opera spilled into the weekend, startups that had invested heavily in OpenAI tech had to wonder how this was going to play out.

Vendor lock-in has been a problem for as long as there have been enterprise buyers. While there are plenty of large language models in the market from a variety of vendors, OpenAI’s GPT 3.5 and GPT 4 seemed to stand above the rest.

Many companies I’ve spoken with have stressed that even though OpenAI appeared to be the market leader (with help from Microsoft’s significant investment in the company), there was a general feeling that the current AI wave is still very early and that it pays to be flexible when choosing a model.

The companies that chose a flexible approach over depending on a single AI model vendor must be feeling pretty good today. If there is any object lesson to be learned from all this, even as the drama continues to play out in real time, it’s that it’s never, ever a good idea to go with a single vendor.

Founders proceed cautiously

Founders who put all of their eggs in the OpenAI basket now find themselves suddenly in a very uncomfortable situation, as the uncertainty around OpenAI continues to swirl. One startup founder, who chose to speak on background so that they could be candid, says their company was just about to sign a big contract with OpenAI, and this situation has left them in limbo.

“It’s still unclear how things will change, given that Sam and several other folks are joining Microsoft,” the founder said. “I’m keen to see what special projects they announce there . . . I’m hopeful that OpenAI continues to build a great developer platform. However, there are chances things/rate of new updates will slow down, so we will be watching.”

Effective accelerationism, doomers, decels, and how to flaunt your AI priors

Arthur co-founder and chief scientist John Dickerson, whose startup helps customers monitor and evaluate AI models, says that while his company is a big fan of OpenAI, recent events show the need for companies to constantly evaluate alternatives.

“We make heavy usage of OpenAI products, both internally and supported via our customers. Yet, these last three days show the brittleness that comes with relying on a single provider or a single model to back production systems,” he said.

Box, for example, built the AI layer on its platform to handle multiple models. Though the company didn’t anticipate something like we’ve seen from OpenAI in recent days, that flexibility will come in handy now, CEO Aaron Levie told TechCrunch+.

“Our whole strategy was to build an abstraction layer that can work across any AI model and any AI vendor,” he said. “While we never could have imagined that this particular set of events playing out as the reason why you need an abstraction layer, we’re built for any amount of flexibility and optionality for where the underlying AI models come from, so we’re well prepared.”

VCs preach flexibility

It makes sense that executives are looking for options when it comes to LLM vendors, and that’s the advice they’re hearing from investors as well. Lily Lyman, general partner at Underscore VC, says the firm encourages the use of open source models, but they understand that not all startups are willing to go that route, at least not right out the gate.

“We recognize that many companies, including some of our own portfolio companies, have built upon OpenAI,” Lyman told TechCrunch+. “While this tumultuous leadership transition is unsettling, the underlying technology is so valuable to so many, including Microsoft, that we hope there will be a resolution that preserves the value, but also takes into account some of the challenges of safety and aligned incentives.

The turmoil may not slow the pace of overall AI progress. Kobie Fuller, general partner at Upfront Ventures, says while this has been dramatic and unsettling, he doesn’t see it slowing innovation in AI and large language models in any way. “It will be interesting to see how this plays out in the next couple of weeks or month [from now],” he said. “But I’m not worried about any of my companies that are building with LLMs, or that suddenly this whole LLM layer is going to go away. That’s not the case at all. So I’m not concerned about that.”

It’s natural for early companies to look for the most performant model. And to this point, that’s been OpenAI, said Jon Lehr, co-founder and general partner at early-stage venture capital firm Work-Bench. But he says he sees more open source options in the future, and he’s encouraging startups to turn to those options more.

“The bottom line is that companies want to avoid vendor lock-in with a single vendor. The recent OpenAI news will lead to more diversity in the ecosystem and help propel open source as the go-to community for venture-scale founders building with LLMs in order to decrease vendor lock-in and increase control over the model weights as well as the ultimate inference produced,” he said.

One thing is certain — companies have always known not to bet all their chips on one vendor. Nobody could have foreseen a situation like this, but it shows the danger inherent in relying on any single vendor, even one that looks entirely stable.

If anything good comes from this crazy situation, perhaps it will be relearning that lesson.

TechCrunch reporter Jagmeet Singh also contributed to this report.

Don’t expect competition authorities to wade into the Microsoft-OpenAI power-play — yet

More TechCrunch

The U.K.’s self-proclaimed “world-leading” regulations for self-driving cars are now official, after the Automated Vehicles (AV) Act received royal assent — the final rubber stamp any legislation must go through…

UK’s autonomous vehicle legislation becomes law, paving the way for first driverless cars by 2026

ChatGPT, OpenAI’s text-generating AI chatbot, has taken the world by storm. What started as a tool to hyper-charge productivity through writing essays and code with short text prompts has evolved…

ChatGPT: Everything you need to know about the AI-powered chatbot

SoLo Funds CEO Travis Holoway: “Regulators seem driven by press releases when they should be motivated by true consumer protection and empowering equitable solutions.”

Fintech lender Solo Funds is being sued again by the government over its lending practices

Hard tech startups generate a lot of buzz, but there’s a growing cohort of companies building digital tools squarely focused on making hard tech development faster, more efficient, and —…

Rollup wants to be the hardware engineer’s workhorse

TechCrunch Disrupt 2024 is not just about groundbreaking innovations, insightful panels, and visionary speakers — it’s also about listening to YOU, the audience, and what you feel is top of…

Disrupt Audience Choice vote closes Friday

Google says the new SDK would help Google expand on its core mission of connecting the right audience to the right content at the right time.

Google is launching a new Android feature to drive users back into their installed apps

Jolla has taken the official wraps off the first version of its personal server-based AI assistant in the making. The reborn startup is building a privacy-focused AI device — aka…

Jolla debuts privacy-focused AI hardware

OpenAI is removing one of the voices used by ChatGPT after users found that it sounded similar to Scarlett Johansson, the company announced on Monday. The voice, called Sky, is…

OpenAI to remove ChatGPT’s Scarlett Johansson-like voice

The ChatGPT mobile app’s net revenue first jumped 22% on the day of the GPT-4o launch and continued to grow in the following days.

ChatGPT’s mobile app revenue saw its biggest spike yet following GPT-4o launch

Dating app maker Bumble has acquired Geneva, an online platform built around forming real-world groups and clubs. The company said that the deal is designed to help it expand its…

Bumble buys community building app Geneva to expand further into friendships

CyberArk — one of the army of larger security companies founded out of Israel — is acquiring Venafi, a specialist in machine identity, for $1.54 billion. 

CyberArk snaps up Venafi for $1.54B to ramp up in machine-to-machine security

Founder-market fit is one of the most crucial factors in a startup’s success, and operators (someone involved in the day-to-day operations of a startup) turned founders have an almost unfair advantage…

OpenseedVC, which backs operators in Africa and Europe starting their companies, reaches first close of $10M fund

A Singapore High Court has effectively approved Pine Labs’ request to shift its operations to India.

Pine Labs gets Singapore court approval to shift base to India

The AI Safety Institute, a U.K. body that aims to assess and address risks in AI platforms, has said it will open a second location in San Francisco. 

UK opens office in San Francisco to tackle AI risk

Companies are always looking for an edge, and searching for ways to encourage their employees to innovate. One way to do that is by running an internal hackathon around a…

Why companies are turning to internal hackathons

Featured Article

I’m rooting for Melinda French Gates to fix tech’s broken ‘brilliant jerk’ culture

Women in tech still face a shocking level of mistreatment at work. Melinda French Gates is one of the few working to change that.

1 day ago
I’m rooting for Melinda French Gates to fix tech’s  broken ‘brilliant jerk’ culture

Blue Origin has successfully completed its NS-25 mission, resuming crewed flights for the first time in nearly two years. The mission brought six tourist crew members to the edge of…

Blue Origin successfully launches its first crewed mission since 2022

Creative Artists Agency (CAA), one of the top entertainment and sports talent agencies, is hoping to be at the forefront of AI protection services for celebrities in Hollywood. With many…

Hollywood agency CAA aims to help stars manage their own AI likenesses

Expedia says Rathi Murthy and Sreenivas Rachamadugu, respectively its CTO and senior vice president of core services product & engineering, are no longer employed at the travel booking company. In…

Expedia says two execs dismissed after ‘violation of company policy’

Welcome back to TechCrunch’s Week in Review. This week had two major events from OpenAI and Google. OpenAI’s spring update event saw the reveal of its new model, GPT-4o, which…

OpenAI and Google lay out their competing AI visions

When Jeffrey Wang posted to X asking if anyone wanted to go in on an order of fancy-but-affordable office nap pods, he didn’t expect the post to go viral.

With AI startups booming, nap pods and Silicon Valley hustle culture are back

OpenAI’s Superalignment team, responsible for developing ways to govern and steer “superintelligent” AI systems, was promised 20% of the company’s compute resources, according to a person from that team. But…

OpenAI created a team to control ‘superintelligent’ AI — then let it wither, source says

A new crop of early-stage startups — along with some recent VC investments — illustrates a niche emerging in the autonomous vehicle technology sector. Unlike the companies bringing robotaxis to…

VCs and the military are fueling self-driving startups that don’t need roads

When the founders of Sagetap, Sahil Khanna and Kevin Hughes, started working at early-stage enterprise software startups, they were surprised to find that the companies they worked at were trying…

Deal Dive: Sagetap looks to bring enterprise software sales into the 21st century

Keeping up with an industry as fast-moving as AI is a tall order. So until an AI can do it for you, here’s a handy roundup of recent stories in the world…

This Week in AI: OpenAI moves away from safety

After Apple loosened its App Store guidelines to permit game emulators, the retro game emulator Delta — an app 10 years in the making — hit the top of the…

Adobe comes after indie game emulator Delta for copying its logo

Meta is once again taking on its competitors by developing a feature that borrows concepts from others — in this case, BeReal and Snapchat. The company is developing a feature…

Meta’s latest experiment borrows from BeReal’s and Snapchat’s core ideas

Welcome to Startups Weekly! We’ve been drowning in AI news this week, with Google’s I/O setting the pace. And Elon Musk rages against the machine.

Startups Weekly: It’s the dawning of the age of AI — plus,  Musk is raging against the machine

IndieBio’s Bay Area incubator is about to debut its 15th cohort of biotech startups. We took special note of a few, which were making some major, bordering on ludicrous, claims…

IndieBio’s SF incubator lineup is making some wild biotech promises

YouTube TV has announced that its multiview feature for watching four streams at once is now available on Android phones and tablets. The Android launch comes two months after YouTube…

YouTube TV’s ‘multiview’ feature is now available on Android phones and tablets