Tech giants like Google and Meta are positioned to offer their premium AI models for free, leveraging their massive ad-based business models. This strategy aims to cut off OpenAI's primary revenue stream from $20/month subscriptions. For incumbents, subsidizing AI is a strategic play to acquire users and boost market capitalization.

While competitors focus on subscription models for their AI tools, Google's primary strategy is to leverage its core advertising business. By integrating sponsored results into its AI-powered search summaries, Google is the first to turn on an ad-based revenue model for generative AI at scale, posing a significant threat to subscription-reliant players like OpenAI.

While US firms lead in cutting-edge AI, the impressive quality of open-source models from China is compressing the market. As these free models improve, more tasks become "good enough" for open source, creating significant pricing pressure on premium, closed-source foundation models from companies like OpenAI and Google.

Google's DNA is rooted in the high-margin search business. This cultural bias, combined with public market pressure, makes it difficult to pursue a long-term, zero-profit "bleed out" strategy for Gemini, even if it could secure a monopoly.

Google's latest AI model, Gemini 3, is perceived as so advanced that OpenAI's CEO privately warned staff to expect "rough vibes" and "temporary economic headwinds." This memo signals a significant competitive shift, acknowledging Google may have temporarily leapfrogged OpenAI in model development.

Google's strategy may be to offer its powerful AI models for free or at a significant loss. As a trillion-dollar company, it can sustain these losses indefinitely, forcing smaller competitors like OpenAI into an "endless sea of red ink" until they collapse, thereby securing a market monopoly.

As competitors like Google's Gemini close the quality gap with ChatGPT, OpenAI loses its unique product advantage. This commoditization will force them to adopt advertising sooner than planned to sustain their massive operational costs and offer a competitive free product, despite claims of pausing such efforts.

OpenAI is now reacting to Google's advancements with Gemini 3, a complete reversal from three years ago. Google's strengths in infrastructure, proprietary chips, data, and financial stability are giving it a significant competitive edge, forcing OpenAI to delay initiatives and refocus on its core ChatGPT product.

As the current low-cost producer of AI tokens via its custom TPUs, Google's rational strategy is to operate at low or even negative margins. This "sucks the economic oxygen out of the AI ecosystem," making it difficult for capital-dependent competitors to justify their high costs and raise new funding rounds.