Stability AI is sinking. The company's business model is in crisis and is trying to find a way to survive in the market.

This London-based AI startup gained popularity for its text-to-image generation model, Stable Diffusion, and is currently considering selling the company due to management struggling with increasing investor pressure related to the company's financial situation.

Interestingly, the company had approached Cohere and Jasper AI, but Cohere declined to engage in negotiations.

Meanwhile, investors are hoping for Stability AI founder Emad Mostaque to step down. Coincidentally, Mostaque's name on Stability AI's website is showing a 404 error. The relationship between Stability AI and its investors has recently become tense as the company strives to generate substantial revenue while offering the model to customers for free.

One of its major investors, Coatue, claims that Mostaque's poor leadership has led to the departure of several senior employees, putting the startup in financial distress. Representatives from Coatue and Lightspeed have resigned from Stability's board, expressing dissatisfaction with Mostaque's management style.

Apparently, Coatue was not satisfied with the recent $50 million investment Stability AI received from Intel, as they hold shares in Intel's competitor, AMD.

Intense Competition

Stability AI is finding it difficult to acquire customers as large tech giants enter the market with their own image generation models.

Meta has launched Emu Edit and Video, Google has Imagen, and recently, Amazon has also launched its own image generation model, the Titan Image Generator, which is currently in preview and available to AWS customers on Bedrock.

Furthermore, Dall-E-3 on ChatGPT Plus has become the last straw. ChatGPT now has over 100 million weekly users.

Moreover, Midjourney, a direct competitor to Stable Diffusion, has over 16.4 million active users as of November. On the other hand, according to Mostaque, Stable Diffusion has over 10 million daily active users across all channels.

Interestingly, despite implementing a subscription model early on, Midjourney has managed to retain customers. Midjourney's monthly subscription fees range from $10 to $120.

Can Stability AI Turn the Tide?

Currently, Stability AI offers Stable LM, Stable Audio, and Stable Diffusion XL. The company recently launched Stable Video, a new free AI research tool that can convert any static image into a short video. Most of the mentioned models are available for free.

However, Mostaque recently expressed the intention to introduce a membership system for Stability AI. He believes that any AI startup in today's market needs to have a business model; otherwise, survival in the market is not easy.

"We are doing reasonably well as a business and steadily growing," he posted on X website.

The company's revenue in August was $1.2 million, and according to a post Mostaque sent on X website last Monday (subsequently deleted), it is expected to reach $3 million in revenue this month through software and services.

To determine the ideal pricing for the new core stable models, he conducted a vote on X. Ironically, the majority of users voted for $1, indicating their desire for the models to be available for free.

Apparently, Stability AI has already implemented a subscription model for Stable Diffusion XL. If you visit the website and try to create an image, it will prompt you to pay a $10 monthly fee.

Mostaque mentioned that there is currently tension within the organization regarding what to release and retain, as well as how to compete on APIs and other products, including consumer-facing products.

"We want to release good models, striking a balance between open-source and open release and how to build a sustainable business," he added.

Mostaque stated that for commercial use, you will have to have a Stability AI membership. "For example, we are considering a monthly fee of $100 for an independent developer if your income exceeds a certain amount, similar to game engines," he said.

He added, "It's like Amazon Prime or Netflix for generative AI models." However, he continued, for non-commercial and academic use, they will continue to provide the models for free.

It is commendable that Stability AI is striving to avoid the need for a sale. However, if the situation arises where selling is the best way out, the company should seriously consider approaching Apple.