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AI subscriptions are a ticking time bomb for enterprise

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Re: AI subscriptions are a ticking time bomb for enterprise

#21

Post by utopiah »

returnInfinity wrote: post #3

Brad Gerstner confirmed that tokens aren't being sold at a loss. Whatever the formula, API + Subscription split, the companies are making a profit on net token sale. They maybe running at loss after all the salaries and stock comp, but tokens are in profit now.

It's like witnessing a rocket using the most powerful engine on Earth then once it escaped orbit turn off the engine and said "It is flying without power!".

Yes, sure, right now it is ... but that's NOT how it got here.

There are trillions invested to recoup and at most billions in sales. It doesn't add up to tokens making a profit any time soon.

Re: AI subscriptions are a ticking time bomb for enterprise

#22

Post by fg137 »

einrealist wrote: post #14

Those price increases will increase the pressure to use cheaper / free models (commoditization), thus cutting into the revenue projections of the frontier model vendors. Its going to be exciting to see what happens to these huge investments and valuations.

> increase the pressure to use cheaper / free models

Not necessarily. Many factors go into what models are available at enterprise level. If you look around, not many companies (everywhere around the world) use DeepSeek models even though they are significantly cheaper.

Re: AI subscriptions are a ticking time bomb for enterprise

#23

Post by benjiro3000 »

ainch wrote: post #15
returnInfinity wrote: post #3

Brad Gerstner confirmed that tokens aren't being sold at a loss. Whatever the formula, API + Subscription split, the companies are making a profit on net token sale. They maybe running at loss after all the salaries and stock comp, but tokens are in profit now.

Tokens can be sold at profit, but 70% of compute expenditure goes to R&D and model training[0]. Inference needs to cover all of that as well as being profitable in a vacuum. [0] https://epoch.ai/data-insights/openai-compute-spend

[dead]

Re: AI subscriptions are a ticking time bomb for enterprise

#24

Post by ainch »

542458 wrote: post #5

I’ve said this before on HN, but there are two things that make me optimistic that we won’t see a big rug pull where price-to-capability ratio skyrockets relative to today: * People keep finding ways of cramming more intelligence into smaller models, meaning that a given hardware spec delivers more model capability over time. I remember not that long ago when cutting edge 70B parameter models could kinda-sorta-someti…

The price for a given level of capability will fall, but the frontier has recently been getting more expensive. If you compare GPT-5 to GPT-5.5 on the Artificial Analysis benchmark, it's ~4x more expensive, but achieves a higher score. Claude 4.7 is also more expensive than predecessors because of a tokenizer change.

As the AI labs become more reliant on enterprise adoption, it makes sense to push capabilities at a cost that makes sense for businesses. Even if it prices out consumers or hobbyists.

Re: AI subscriptions are a ticking time bomb for enterprise

#27

Post by sarchertech »

wqaatwt wrote: post #7
iLoveOncall wrote: post #4

Earlier quoted context omitted.

He's an interested party. His investments are worth a lot more if he says that tokens are sold at a profit. I don't understand how anyone would trust him?

There are plenty of various providers on OpenRouter serving very large Chinese models like GLM for a fraction of what OpenAI/Anthropic. Presumably they are making a profit. It’s unlikely that Claude is proportionally that bigger and more expensive to serve so profit margins on inference must be pretty decent

Do we know they are making a profit though? They could be subsidizing use to build market share the same way. They might not have billions, but at the volumes they are selling maybe they’ve got the cash to do it.

Even if they are “profitable” how many Uber drivers are “profitable” because they aren’t correctly calculating asset depreciation. Maybe these guys are doing the same thing.

Maybe it’s a lot of people who already had GPUs for crypto mining, and they’ve moved over to this, so that if they need to grow and buy new GPUs the costs would dramatically grow.

Re: AI subscriptions are a ticking time bomb for enterprise

#28

Post by rglullis »

riddlemethat wrote: post #11
m0llusk wrote: post #9

Earlier quoted context omitted.

That isn't enough. Over time the need for growth and increasing profits will squeeze existing margins.

Open source models apply pressures on the low end of the market. The paid models are so much better that they can charge based on value for enterprises.

Have you used any of the recent models? My experience with GLM 5.1 does not make me miss Opus at all.

Re: AI subscriptions are a ticking time bomb for enterprise

#29

Post by PKop »

> is not a rounding error. It is

Who said it was?

> Pull out the napkin. This matters.

The article wouldn't exist if you didn't think it mattered, just tell us why.

> the question is not whether they got a good deal. The question is

Who said that was the question?

> This Is Not One Company's Problem

Who said it was?

Stop telling us what thing aren't, just speak like a normal human and convey your own thoughts. It's an insult to your audience to throw constant AI slop at them.

> thousands of companies have woven AI subscriptions deep into their operations. Marketing teams draft copy through ChatGPT Plus.

Yea I bet you do..

Re: AI subscriptions are a ticking time bomb for enterprise

#30

Post by stego-tech »

fg137 wrote: post #20

Why does the author assume that enterprises use subscriptions? Many companies use models deployed on Azure/Bedrock etc are already paying based on usage (often with discounts).

Not SMBs and SMEs. Big Enterprises would generally be using API buckets or Enterprise-specific consumption models via sales teams and contracts, but most companies would default to subscription tiers - either due to shadow IT paying out of pocket for subscriptions to duck corporate IT, or because they’re too small to negotiate rates and API buckets, or because their IT teams lack the skills needed for the same.

Remember that enthusiasts leaning on API keys and large enterprises are the exception, not the norm, and even some large customers may lean on subscriptions for at-scale adoption and wait for teams to report hitting usage caps before buying more token buckets. Subscriptions are predictable, reliable, and above all else a contractable way to acquire service.

Truth be told, this has been my red flag in orgs and with peers elsewhere for several years, now. Those orgs leaning on subscriptions are in for a nasty surprise within a year or two (like the author, I predict sooner than later), especially if those subscriptions power internal processes instead of AI buckets.

Hell, this is why I think there’s a sudden focus on the “Forward Deployed Engineer” nonsense role: helping organizations migrate from subscriptions to token buckets for processes so the bill shock doesn’t send them running away screaming.

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