Are OpenAI and Anthropic losing money on inference?
martinalderson.com
Are OpenAI and Anthropic losing money on inference?
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Re: Are OpenAI and Anthropic losing money on inference?
#2So, if this is true, OpenAI needs much better conversion rates, because they have ~15 million paying users compared to 800 million weekly active users:
Re: Are OpenAI and Anthropic losing money on inference?
#3So, if this is true, OpenAI needs much better conversion rates, because they have ~15 million paying users compared to 800 million weekly active users: https://nerdynav.com/chatgpt-statistics/
Yeah but they can probably monetize them with ads.
Re: Are OpenAI and Anthropic losing money on inference?
#4These articles (of which there are many) all make the same basic accounting mistakes. You have to include all the costs associated with the model, not just inference compute.
This article is like saying an apartment complex isn’t “losing money” because the monthly rents cover operating costs but ignoring the cost of the building. Most real estate developments go bust because the developers can’t pay the mortgage payment, not because they’re negative on operating costs.
If the cash flow was truly healthy these companies wouldn’t need to raise money. If you have healthy positive cash flow you have much better mechanisms available to fund capital investment other than selling shares at increasingly inflated valuations. Eg issue a bond against that healthy cash flow.
Fact remains when all costs are considered these companies are losing money and so long as the lifespan of a model is limited it’s going to stay ugly. Using that apartment building analogy it’s like having to knock down and rebuild the building every 6 months to stay relevant, but saying all is well because the rents cover the cost of garbage collection and the water bill. That’s simply not a viable business model.
Update Edit: A lot of commentary below re the R&D and training costs and if it’s fair to exclude that on inference costs or “unit economics.” I’d simply say inference is just selling compute and that should be high margin, which the article concludes it is. The issue behind the growing concerns about a giant AI bubble is if that margin is sufficient to cover the costs of everything else. I’d also say that excluding the cost of the model from “unit economics” calculations doesn’t make business/math/economics since it’s literally the thing being sold. It’s not some bit of fungible equipment or long term capital expense when they become obsolete after a few months. Take away the model and you’re just selling compute so it’s really not a great metric to use to say these companies are OK.
Re: Are OpenAI and Anthropic losing money on inference?
#5If inference is that cheap, why is not even one company profitable yet?
Re: Are OpenAI and Anthropic losing money on inference?
#6These articles (of which there are many) all make the same basic accounting mistakes. You have to include all the costs associated with the model, not just inference compute. This article is like saying an apartment complex isn’t “losing money” because the monthly rents cover operating costs but ignoring the cost of the building. Most real estate developments go bust because the developers can’t pay the mortgage paym…
What will be the knock on effect on us consumers?
Re: Are OpenAI and Anthropic losing money on inference?
#7These articles (of which there are many) all make the same basic accounting mistakes. You have to include all the costs associated with the model, not just inference compute. This article is like saying an apartment complex isn’t “losing money” because the monthly rents cover operating costs but ignoring the cost of the building. Most real estate developments go bust because the developers can’t pay the mortgage paym…
I think the point isn't to argue AI companies are money printers or even that they're fairly valued, it's that at least the unit economics work out. Contrast this to something like moviepass, where they were actually losing money on each subscriber. Sure, a company that requires huge capital investments that might never be paid back isn't great either, but at least it's better than moviepass.
Re: Are OpenAI and Anthropic losing money on inference?
#8Input inference i.e. reading is cheaper, output i.e. doing the generating is not, for something called generative AI sounds pretty fucking not profitable.
The cheap usecase from this article is not a trillion dollar industry and absolutely not the usecase hyped as the future by AI companies, that is coming for your job.
Re: Are OpenAI and Anthropic losing money on inference?
#9I don't believe the asymmetry between prefill and decode is that large. If it were, it would make no sense for most of the providers to have separate pricing for prefill with cache hits vs. without.
Given the analysis is based on R1, Deepseek's actual in-production numbers seem highly relevant: https://github.com/deepseek-ai/open-infra-index/blob/main/20...
(But yes, they claim 80% margins on the compute in that article.)
> When established players emphasize massive costs and technical complexity, it discourages competition and investment in alternatives
But it's not the established players emphasizing the costs! They're typically saying that inference is profitable. Instead the false claims about high costs and unprofitability are part of the anti-AI crowd's standard talking points.
Re: Are OpenAI and Anthropic losing money on inference?
#10These articles (of which there are many) all make the same basic accounting mistakes. You have to include all the costs associated with the model, not just inference compute. This article is like saying an apartment complex isn’t “losing money” because the monthly rents cover operating costs but ignoring the cost of the building. Most real estate developments go bust because the developers can’t pay the mortgage paym…
What will be the knock on effect on us consumers?
API prices are going up and rate limits are getting more aggressive (see what's going on with cursor and claude code)