Kai-Fu Lee, the former head of Alphabet Inc.’s (NASDAQ:GOOG) (NASDAQ:GOOGL) Google China and founder of AI startup 01.AI, says the rise of open-source AI models like DeepSeek has exposed an existential risk to OpenAI’s business—and he’s pivoting his company accordingly.
What Happened: On Saturday, Lee shared a clip from his interview with Bloomberg, in which he stated that the AI industry is consolidating around a few foundational models—and that open source is emerging as the inevitable winner.
“In both U.S. and China, the pre-training of a giant model has consolidated… it’s become clear that open-source will be the winner,” Lee said. He added that closed model companies like OpenAI “got shocked when they saw a model as good” as DeepSeek’s.
Lee also pointed out the dramatic cost disparity between the two approaches.
“OpenAI’s cost was $7 billion in 2024. DeepSeek probably operated with 2% of that.”
He questioned the long-term sustainability of OpenAI’s business model, especially when competing against open-source projects that offer similar quality at a fraction of the cost.
“With that kind of formidable competitor, I think Sam Altman is probably not sleeping well,” he added.
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Why It’s Important: The open source vs. closed source AI model debates have also drawn support from key figures like Elon Musk and Meta Platforms, Inc. (NASDAQ:META) CEO Mark Zuckerberg, who have both voiced support for more transparent development in AI.
Last year, Google introduced Gemma, a new family of open-source AI models. It is based on the same research and technology behind Gemini, Google’s proprietary closed-source AI model that powers the Gemini chatbot (formerly Bard).
In January, DeepSeek’s open-source models, including its R1 release, disrupted the market—triggering a $593 billion selloff in Nvidia Corporation’s (NASDAQ:NVDA) market cap.
Last month, DeepSeek announced its decision to open-source five of its code repositories. For many tech companies, open-sourcing code is a major decision, as these repositories often contain crucial intellectual property.
This approach stands in stark contrast to OpenAI, which has maintained a closed-source strategy.
Despite mounting competition from DeepSeek, ChatGPT remains widely popular. According to OpenAI’s Chief Operating Officer, Brad Lightcap, the platform saw a 33% increase in users since December and now boasts over 400 million weekly active users as of February.
Image via Shutterstock
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