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AI's economics don't make sense

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Re: AI's economics don't make sense

#91

Post by redox99 »

doctorpangloss wrote: post #45
joshjob42 wrote: post #10

There's a few major problems with the article. The most obvious is that frontier labs are not charging remotely close to the cost of tokens; afaik most estimate north of 80% profit margins. As a reference, providers are profitably providing Kimi K2.6 for $4/1Mtok out. Is that as good as Opus? No, but it's probably at least Sonnet level, so that's ~4x cheaper than Sonnet while still being profitable to serve on the ma…

lots of words. do you think per token prices will go up or down in the long term? will the price per task trend down or up? what about the price of human labor?

He is proving that the article is based on false information.

Prices going up or down depends on what labs decide and what users demand. Strong models being profitable at lower prices than what frontier labs offer is a fact.

Re: AI's economics don't make sense

#92

Post by gwbas1c »

What's the quote?

> Don't attribute to malice what can be attributed to incompetence.

We're currently used to SAAS billing models that are either all-you-can-eat subscriptions, or metered around some easy-to-understand metric like # of users, or otherwise number of gigabytes consumed.

The SAAS economics work that way because the compute consumed is typically too cheap to meter. Some customer uses a little more than average, some customer uses a little less than average; it's not worth the time to even it out to the penny.

AI is so darn CPU (GPU? AIPU?) intense that will only be profitable, and affordable, if it can be metered like electricity and billed with a small margin.

In SAAS, we're not used to metering billing computations this way.

Re: AI's economics don't make sense

#93

Post by gizajob »

swader999 wrote: post #46
milesvp wrote: post #19

Reading this piece, I'm reminded of a podcast I heard some years ago where they were interviewing an early google marketing employee who was talking about the economics of google search. They said they'd done some surveys and concluded that they determined that the average user would get something like $20/year of value, and so that was the most they could realistically charge for search. Meanwhile, they could make s…

The output won't be read by humans (and increasingly this is the case in my own use) so I don't see how that works. If the output itself will be directed by the highest bidder, that doesn't work. Or if the output influences the agent's direction, that doesn't work either.

Stallman is going to be overjoyed when all the class and variable names in open source repositories have been reformatted to say EnjoyCocaCola and year_of_the_trucks_medicated_pad etc

Re: AI's economics don't make sense

#94

Post by weakfish »

BosunoB wrote: post #77

All subscription models are subsidized by users who don't use much. The fact that somebody on a $20 sub might get $50 in value isn't crazy if there are 3 people who only get $10 in value. This isn't some sign that the model is broken, it's the intended outcome. Also, I didn't read this whole thing, but I have yet to see Zitron respond to the strongest AI financials claim, which is that the models themselves are profi…

> but I have yet to see Zitron respond to the strongest AI financials claim

He does in this [0] article.

[0] https://www.wheresyoured.at/ai-is-really-weird/

Re: AI's economics don't make sense

#95

Post by csande17 »

BosunoB wrote: post #77

All subscription models are subsidized by users who don't use much. The fact that somebody on a $20 sub might get $50 in value isn't crazy if there are 3 people who only get $10 in value. This isn't some sign that the model is broken, it's the intended outcome. Also, I didn't read this whole thing, but I have yet to see Zitron respond to the strongest AI financials claim, which is that the models themselves are profi…

Zitron has responded to that claim here: https://www.wheresyoured.at/ai-is-really-weird/#does-anthrop...

The TL;DR is that Dario likes to talk about imaginary/hypothetical companies a lot in interviews, and those companies' financials don't have a direct basis in reality.

Re: AI's economics don't make sense

#96

Post by roywiggins »

doctorpangloss wrote: post #45
joshjob42 wrote: post #10

There's a few major problems with the article. The most obvious is that frontier labs are not charging remotely close to the cost of tokens; afaik most estimate north of 80% profit margins. As a reference, providers are profitably providing Kimi K2.6 for $4/1Mtok out. Is that as good as Opus? No, but it's probably at least Sonnet level, so that's ~4x cheaper than Sonnet while still being profitable to serve on the ma…

lots of words. do you think per token prices will go up or down in the long term? will the price per task trend down or up? what about the price of human labor?

not nearly as many words as Ed Zitron at least

Re: AI's economics don't make sense

#98

Post by overrun11 »

Darwins_Toffees wrote: post #44
ameliaquining wrote: post #32

As it happens, published just this morning is an article from Kelsey Piper that explains in some detail what's wrong with Zitron's takes: https://www.theargumentmag.com/p/ais-biggest-critic-has-lost...

- Reproduce academic papers - Put coding projects online for me so I can share them with friends - Determine which books in a set are missing from the school library and find where they’re cheapest online - Figure out which soccer club the team I see practicing at the local rec center belongs to and how to register my son - Design a bunch of robot-themed handwriting activities for a kindergartner who needs to practic…

Google can't do any of these things

Re: AI's economics don't make sense

#99

Post by mitjam »

I would be curious to see a calculation backwards from TAM. Napkin: 50M developers worldwide (SlashData, 20M in China and India). If every developer had a $200/month subscription, that‘s $10B / Month. I think, many developers are expected to pay much more than that.

Re: AI's economics don't make sense

#100

Post by boelboel »

joshjob42 wrote: post #10

There's a few major problems with the article. The most obvious is that frontier labs are not charging remotely close to the cost of tokens; afaik most estimate north of 80% profit margins. As a reference, providers are profitably providing Kimi K2.6 for $4/1Mtok out. Is that as good as Opus? No, but it's probably at least Sonnet level, so that's ~4x cheaper than Sonnet while still being profitable to serve on the ma…

Isn't this akin to saying Big Pharma companies could easily make money if they just stopped doing expensive research? The massive R&D spend is the core of the business plan; it's the only reason they can demand high prices in the first place. Once OpenAI stops spending billions on training, their pricing power vanishes because users will just migrate to Anthropic or whoever releases the next frontier model. Would imply there'd be space for only one to outlast them all in some sort of war of attrition (perhaps similar to silicon industry).
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