OpenAI Code Red: Inside the Panic Over Gemini 3 and Mark Chen’s Counter-Attack

Data source LMArena

Introduction

It used to be that December was a time for winding down. Engineers would push their final commits. Product managers would vanish to Tahoe. But this year the holiday spirit at OpenAI has been replaced by a siren. On December 1st. Sam Altman sent a memo that didn’t just suggest a pivot. It screamed “emergency.” The directive was simple and terrifying. OpenAI is currently in a state of OpenAI code red.

For nearly three years OpenAI enjoyed a comfortable monopoly on the public imagination. They were the protagonists of the AI narrative. Google was the slow. bureaucratic giant trying to dance. But the table above tells a different story. The release of Gemini 3 didn’t just close the gap. It shattered the assumption that OpenAI was untouchable.

This isn’t just about a software update. It is an existential crisis involving paused projects. The looming threat of ChatGPT ads. And a desperate race to release a new reasoning model before the user base permanently fractures.

1. The Trigger: How Gemini 3 Surpassed GPT-5 and Forced the Pivot

The numbers are brutal. If you look at the AI race from a purely statistical perspective. The momentum has shifted. Reports from the Wall Street Journal indicate that Gemini 3 has effectively lapped GPT-5 in coding and reasoning tasks. We aren’t talking about marginal gains. We are talking about a fundamental shift in utility. The result is a massive migration of attention. Google’s active users jumped from 450 million to 650 million between July and October.

OpenAI still holds the lead with roughly 800 million weekly users. But the delta is shrinking. The “Nano Banana” image generator from Google is currently stealing the creative class away from DALL-E. This forced the OpenAI code red.

The problem isn’t just code. It is the stack. This is the “Full Stack” problem. Google owns the silicon (TPUs). They own the cloud. They own the distribution via Android and Chrome. OpenAI is renting the computer they are trying to conquer the world with. When you are burning cash to lease GPUs from Microsoft. Your margin for error is zero. Google can afford to bleed money on Gemini to protect Search. OpenAI cannot afford to bleed.

This economic reality is what turned a competitive dip into a full-blown OpenAI code red.

2. Inside the Memo: “Rough Vibes” and “Economic Headwinds”

The memo sent by Altman was distinct for its lack of corporate gloss. It was raw. He admitted to “rough vibes” within the company. This is Silicon Valley code for morale being in the toilet. The admission was followed by a strategic slaughter of non-core projects. The OpenAI code red directive explicitly froze work on:

• “Pulse” (a personal assistant project).
• Specialized health agents.
• New shopping tools.

Why kill these products? Because they are distractions. The directive is now singular. Fix the day-to-day experience. Users have been complaining that the models feel “cold.” The latency is too high. The reliability is spotting. The OpenAI code red is an admission that they took their eye off the ball. They were too busy building the sci-fi future of agents and forgot to polish the hammer that people actually use today.

The memo mentions “temporary economic headwinds.” That is the scary part. It implies that the infinite money glitch is starting to glitch. When you are in a OpenAI code red scenario. You don’t build cool features for 2027. You fix the product that pays the bills today.

3. The “Enshittification” Fear: Are ChatGPT Ads Inevitable?

This brings us to the elephant in the server room. The money. Internet have been radioactive lately. The number one fear isn’t AGI taking over the world. It is ChatGPT ads. Users have spotted code in the Android app referencing ad libraries. The Information reported that OpenAI is testing “various types of ads.” Including online shopping placements.

Here is the business reality. The burn rate to train these models is astronomical. Google can subsidize Gemini via its massive search ad monopoly. OpenAI has to make the math work on its own. Currently ChatGPT ads are a high-value target for advertisers. We are seeing CPC estimates around $6.91 for high-intent terms. That is lucrative real estate. But it destroys the user experience.

The OpenAI code red puts this tension center stage. The “shopping agent” project was paused. But the infrastructure for monetization is likely still being built in the background. If the subscription revenue doesn’t cover the compute costs of the next model. You will see ads.

This is the “enshittification” cycle. A platform starts as a great tool. Then it becomes a great business. Then it becomes a billboard. The OpenAI code red is an attempt to delay that final stage by making the product good enough that people keep paying $20 a month.

4. “Is ChatGPT Getting Worse?” Addressing the Quality Drop

If you type is ChatGPT getting worse into a search engine. You will find thousands of people nodding their heads. The OpenAI code red is a direct response to this sentiment. The complaint isn’t just about hallucinations. It is about “refusals.” It is about the model becoming a moralizing lecturer rather than a tool.

Users report GPT-5 refusing harmless prompts. ignoring custom instructions. and adopting a tone that feels condescending. This happens when you over-tune for safety. You lobotomize the creativity. The OpenAI code red memo specifically mentions fixing the “cold” tone. They realized that if the tool feels like a human HR department. People will stop using it.

Google’s Gemini 3 currently feels looser. Faster. More willing to play. That is a UX advantage. The OpenAI code red is about stripping away the layers of safety-tuning sludge that have accumulated on top of the base model.

5. Mark Chen’s Defense: “We Hate to Lose”

To understand the internal psychology of this moment. We have to look at Mark Chen OpenAI. Chen is the Chief Research Officer. He recently gave an interview that serves as the perfect companion piece to Altman’s panic memo.

Chen is a former high-frequency trader and a poker player. He thinks in probabilities and bets. His take on the OpenAI code red situation is less about panic and more about competitive fury. “We hate to lose,” Chen said. He admitted Gemini 3 is a “pretty good model.” But he pushed back on the idea that OpenAI has lost its technical edge.

His argument rests on “long arcs.” He claims that while Google won this round of incremental updates. OpenAI is focused on the next paradigm. Specifically reasoning. Chen shared stories about the talent war that clarify why the OpenAI code red is so vital. He mentioned Mark Zuckerberg hand-delivering soup to OpenAI researchers to recruit them.

This is the reality of the AI race. It is a war for talent. If OpenAI looks like it is losing. The researchers leave. If the researchers leave. The game is over.

Chen emphasized that they have built massive “muscle” in pre-training. He claims they have internal models that can match Gemini 3 easily. The delay isn’t capability. It is safety and post-training.

6. The Counter-Strike: The New Reasoning Model Coming “Next Week”

The most significant piece of news to come out of the OpenAI code red memo is the promise of an immediate release. Altman teased a new reasoning model launching “next week.” This is likely the successor to the o1 series.

Mark Chen dropped a specific detail about how they evaluate these models. He mentioned a math problem he loves. It involves creating a random number generator mod 42 using generators modulo primes less than 42.

Current language models (System 1 thinkers) fail at this. They try to pattern match. They get close but they don’t solve it. A true reasoning model (System 2) needs to stop. think. and derive the solution. The OpenAI code red is essentially a bet that this new reasoning model will blow Gemini 3 out of the water.

Internal benchmarks reportedly show this new model outperforming Google. But we have heard that before. The proof will be in the shipping.

If this model launches and it is just marginally better. TheOpenAI code red will continue. If it is a step-change improvement like GPT-4 was. Then OpenAI buys itself another six months of dominance.

7. The Talent War: Meta, Google, and the “Soup” Defense

The OpenAI code red is also a defensive maneuver against brain drain. We mentioned the soup. But the recruitment battle is vicious. Mark Chen OpenAI described it as “fun to see it escalate.” But it is clearly a stressor. Meta has unlimited money and compute. Google has the TPU pods. OpenAI has… the “mission.”

The “mission” only works as a recruitment tool if you are winning. Nobody wants to work 80 hours a week for the company that used to be on top. Chen admitted that Meta went after half his direct reports. They all stayed. But for how long?

The OpenAI code red is necessary to prove to their own employees that they can still ship. The freeze on “Pulse” and other projects is also about resource allocation. You can’t have your best engineers working on a shopping bot when the core foundation is cracking.

This is the “Soup Defense.” You keep your people by feeding them victories. Not just lunch.

8. Conclusion: Can OpenAI Win the War Without Selling Out?

The OpenAI code red of December 2025 will be remembered as a pivot point. For the first time. OpenAI is playing defense. Google has successfully reorganized. They have merged Brain and DeepMind into a single killing machine. They have Gemini 3 vs GPT-5 clearly in their favor for now.

OpenAI is facing a classic innovator’s dilemma. They need to monetize to pay for the compute. But monetizing via ChatGPT ads degrades the product and opens the door for competitors. They need to ship faster to beat Google. But shipping too fast degrades quality and leads to the “is ChatGPT getting worse” narrative.

The next few weeks will decide the future of the company. If the new reasoning model restores the magic. The OpenAI code red will be seen as a brilliant course correction.

If they fumble this launch. The migration to Gemini will solidify. And OpenAI might end up being the Netscape of the AI era. The company that showed us the future but didn’t survive to rule it. We will know the answer soon. The new model may drop next week. Until then. The sirens are blaring.