The Tale of AI-Image Company Midjourney & Their Free Tier Dilemma.
GPT is burning through billions to offer you a free subscription. Not everyone can do that.
If you're a constant user of ChatGPT, you might notice that it has a free version. I'm pretty sure that not a lot of you pay for ChatGPT—and that's quite normal. Honestly, I don't tend to use ChatGPT often enough to want to pay for it. I always see it as a Google alternative, and since I don't pay for Google, I don't intend to pay for ChatGPT.
But users like me and some of you—the free users—are actually costing OpenAI billions of dollars. This model is only made possible because of those few who actually pay for subscriptions.
Big Players Can Afford to Burn Cash
There's something you should know: ChatGPT is one of the most valuable AI tools out there. They have an enormous amount of funds to burn through—only third or fourth to Google, Microsoft, and Amazon. For private companies that are innovative in AI, OpenAI is one of the first few that needed to raise a ton of cash to burn it so you get free usage.
And it was spot on because this free usage is now leading to addictive behaviors in some users, which is what they probably wanted at the end of the day.
A Different Category: AI Image Generation
Now, let's look at a different category of AI products: image generation.
Midjourney (in case you're not aware of this company) is hands down the best image generation AI tool in the market [with the exception of GPT's latest model that has image generation capabilities].
Midjourney is quite old compared to many AI products these days. When I tried it, I was immediately shocked. It produced amazing, ultra-realistic images that I definitely needed for my articles and content writing, so I started using their free tier initially. Over time, I found it appropriate to pay for the product because I needed much more usage. So I became a Midjourney user.
The Freemium Dilemma
If you're the CEO of a company with the best AI image generator out there, you'd probably want to show users what your product can do. That's why you keep a freemium model—"Try it for free, but if you want more usage, buy a subscription." That's what Midjourney did for a while.
But then users started to abuse the free trials. They created different emails to get more free access. Not only that, some created ethically questionable images (like Donald Trump getting arrested). Put all of that together, and the company decided that maintaining a free tier just didn't make sense. They would burn through a huge amount of cash that might not be worth it.
The Economics of AI Image Generation
AI image generation—AI products in general—come with a huge bill because of the training models and user usage. When you work with image generation, it's not like you just create one image because you absolutely need it and then you go away. No, you tend to create tens of images for fun. You want to see a cat holding a spoon and eating like a baby because it's entertaining to show other people. And this alone costs a good amount of money.
I personally am working on a product that involves AI image generation, and premium options are extremely difficult to offer.
The Hard Math Behind Free Tiers
Let's do some math. For me to offer a product with an image generation API that is reasonably priced, I would have to charge people around six cents to use this tool. These six cents give zero profitability to me. So let's bump it up a bit and say eight cents, or for simplicity, let's say ten cents.
Now, if I want to offer a freemium product, I can give users a few images per day. That's the only way it would make sense. Or even per month. Let's say I give a one-dollar limit, which is approximately 10 images you can generate per month for free. So each new user gets only 10 free images to try the product.
If they create a new account with a new email, I'm forced to give them another dollar's worth of images. You might not think of a dollar as a big deal, but if I aim to reach 10,000 users in the first year, this would cost me a minimum of $10,000.
The Profitability Question
The real question is: how many people are actually going to pay for the product? This is where profitability becomes questionable for AI tools.
I would need 1,000 of those 10,000 users to pay for a $10 monthly subscription to make it worthwhile. This 10% conversion rate from free to paid is a bit too high for a new product unless you have a much superior offering.
Limited Options for AI Startups
That's why most AI tools that provide an image generation service have two choices:
Remove the freemium option entirely and just offer a paid service like Midjourney with a monthly payment.
Decrease the quality of images, make it extremely cheap to offer free options, and spam your website with ads to make the economics work.
AI image generation tools are not cheap to maintain. They're high-end products competing in an ocean filled with sharks.
The Competitive Challenge
If I created an AI image generation tool without a freemium option, why would people who only want to generate an image or two use my product when they can use ChatGPT for free to generate an image that is probably as good, if not better, than mine?
This question is constantly asked by every single AI tool developer trying to compete in this ocean of sharks that is turning redder day after day.
The reality is clear: only the biggest players can afford to burn cash on free tiers, and smaller companies like Midjourney have to make the tough choice to focus on paying customers if they want to survive.
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