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I think Anthropic and OpenAI have found product-market fit

simonwillison.net

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Re: I think Anthropic and OpenAI have found product-market fit

#501

Earlier quoted context omitted.

I'm about to leave a shallow comment, but I am a bit skeptical of the supposed drop in inference costs. If AI labs saw a lot of potential there, they'd surely be bragging about it non-stop? So the fact that publicly available information is conflicted is probably a sign that at the very least, the numbers aren't amazing. Yes I know there's no evidence and this is lazy reasoning. But there's probably a bit of truth to…

Why on earth would AI labs be bragging about how little the product they sell actually costs them to make? You don't want to do anything that reduces it's perceived value to the user, that might make them less willing to pay for it. Also, inference costs are bound to go way down with more optimized architectures. GPUs are fundamentally not great at inference. No platform where the weights are streamed from a large po…

I doubt having to replace every single chip in your data center every time you release a new model will bring down costs.

Re: I think Anthropic and OpenAI have found product-market fit

#502

Earlier quoted context omitted.

The bottleneck has moved from producing a thing that works to knowing that the thing was the right thing to build. The more of the latter they can take on, the fewer knowledge workers are needed at all . So rather than 5% of every knowledge worker's salary going into tokens, 100% of the knowledge worker's total employment cost goes into tokens and you get a 20x productivity boost as a theoretical minimum across those…

This is the same argument that has been historically made for outsourcing developers. Get 20 more devs for the cost of 1 dev in the US. I suspect that AI will fail to pan out to the same extent for the same reason why outsourcing hasn't fully panned out (even though every company tries it after getting big enough). The problems that will come up will be and always have been ongoing maintenance. AI is great at writing…

> I suspect that AI will fail to pan out to the same extent for the same reason why outsourcing hasn't fully panned out

My mental model for that is that outsourcing fails where the work is being done organisationally far from the knowledge needed to do it. We know that's true of teams inside organisations, there's been a lot of research on how distance in the organisational tree negatively impacts productivity. Outsourcing is a pathological worst-case of that.

The promise (promise! We're not there yet!) of AI is that I can have a cross-functional team on my laptop. Organisational distance is zero. Where previously the outsourced team has to wait for the time zones to roll round so I can answer their blocking question when I get to my email STRICTLY AFTER I have had my coffee, now it's a prompt in a chat window with a button I can click to make a choice in 5 seconds. Delay is gone, cost of delay is gone.

> The problems that will come up will be and always have been ongoing maintenance. AI is great at writing new code without a brain behind it, but once you get to the point where you need to refactor code, you start really needing someone with coding experience to guide the AI or veto it's mistakes.

Oh, absolutely. That's a minefield. Today. It will be, right up until it isn't. There are ways to set up agents and projects right now that make a dramatic difference to how this part of the picture plays out, but those will sink into the harnesses as time goes on.

But also the big problem with maintenance and outsourced teams tends to be the commercial structure around the contract. You get a Build team, who Build the Thing and then: no more features for you, anything you want to add past the original spec costs extra. They hand over to the Run And Maintain team, who get to fix all the bugs that the Build team left but without the knowledge gained from building the thing, but are scaled and located to be absolutely as cheap as the supplier can get away with so probably don't have the skill, inclination, motivation, or permission to take on any restructuring to make the bug fixing easier and they're on the wrong end of the globe so there's a 24-hour latency on any queries. It's a terrible way to set teams up, but it looks good on paper.

Again, that's peculiar to outsourcing and completely goes away if I have the same team that built the thing own the thing long-term. That's true if it's humans or AI!

> I don't think that's really fixable even with a lot better AI. It's not something that ultimately comes out of the likes of github data.

No, it's a harness problem. You need to start from a maintainable point and keep standards in place. It'll take work to get the harnesses there and it's not ubiquitous. You might also need better models, but I've already personally seen big differences in outcomes between projects that took certain steps and others that didn't; it's nothing revolutionary, mostly stuff that works for humans also works for AIs but you need to know to ask for it.

> I'm not saying that AI isn't going to make things better, btw, I just don't think we'll see a 20x improvement. Probably more like 1.5 or 2x.

I think people radically underestimate the cost of delay. I don't know if 20x is realistic for the AI itself, but I think it's not impossible once the inefficiencies of having to go to other humans is factored in.

Re: I think Anthropic and OpenAI have found product-market fit

#503

They've got, ballpark, $5t to $10t to make back in the next 5 years, or the hardware buildouts will start getting written down. This means we're going to need $1t+ per year in spending, per year, on tokens. 200m knowledge workers in the world, 30m developers. We're talking about a world where you need 5% of every knowledge workers salary to go into tokens. 20% if you're a developer. That's a _huge_ shift. Most people…

So you've got that market. Let's call it the demand BY knowledge workers to do the work. You've also got:

2. The companies themselves buying tokens for operations to make the work more efficent. e.g. Salesforce agent or Microsoft Office agent or random saas inventory agent. (and if you say those will go away (which I don't believe), it's even more bullish. The tokens just go to someone vibe coding XYZ, which is EVEN MORE than if you were to buy saas because it's SaaS product x Companies that built it instead of just one)

3. The companies SELLING tokens. This is also new markets like schools and small business (e.g. the local gas station buying an inventory tool)

4. The consumers "buying" (I put in quotes because it can be subsidised but the company) through chatgpt, strava, instagram/netflix recommendation, etc.

Local models still take compute, and while it may be cheaper, it is the same argument of on prem vs cloud. No one operates on prem unless you HAVE to for regulatory. Margins will come down and you just spin up a GCP/OpenAI/Anthropic agent.

It may be "cheaper" but rationally its better to pay someone to manage it. Thats why Hetzner only had $367M in revneue (a lot but tiny compared to managed services)

Re: I think Anthropic and OpenAI have found product-market fit

#504

They've got, ballpark, $5t to $10t to make back in the next 5 years, or the hardware buildouts will start getting written down. This means we're going to need $1t+ per year in spending, per year, on tokens. 200m knowledge workers in the world, 30m developers. We're talking about a world where you need 5% of every knowledge workers salary to go into tokens. 20% if you're a developer. That's a _huge_ shift. Most people…

I work for a tiny little company ($150MM annual rev with 9% net) and we are already looking at dropping $100k on hardware to run local models because, for us, they're "good enough." Our estimated spend for AIaaS would exceed that cost in less than a year. In a few years, there will be hardware capable of running frontier models good enough for most things at accessible prices for even tiny companies.

[dead]

Re: I think Anthropic and OpenAI have found product-market fit

#505
post #469

Earlier quoted context omitted.

Yeah, that's the part that just seems to be wildly under-discussed to me. If open source models are ~3-6 months behind SOTA, and ~opus4.6 capabilities are good-enough for product market fit, do the frontier labs have half a decade to catch up on their prior burn? AI cost ballooning faster than companies can afford is becoming a very common topic in my circles right now. The era of "I'll pay infinitely more for margin…

Open source models, especially qwen are pretty dang good. But its not opus 4.6, the evals dont tell the full story. I question the assumption open source models are 3-6 months out.

To make an extreme comparison, desktop Linux was originally supposed to happen in 1999.

Re: I think Anthropic and OpenAI have found product-market fit

#506

Earlier quoted context omitted.

I'm about to leave a shallow comment, but I am a bit skeptical of the supposed drop in inference costs. If AI labs saw a lot of potential there, they'd surely be bragging about it non-stop? So the fact that publicly available information is conflicted is probably a sign that at the very least, the numbers aren't amazing. Yes I know there's no evidence and this is lazy reasoning. But there's probably a bit of truth to…

Why on earth would AI labs be bragging about how little the product they sell actually costs them to make? You don't want to do anything that reduces it's perceived value to the user, that might make them less willing to pay for it. Also, inference costs are bound to go way down with more optimized architectures. GPUs are fundamentally not great at inference. No platform where the weights are streamed from a large po…

A couple of years ago Altman was saying the price of AI compute is going to drop 90% year over year or something like that, so I don't think they're nervous about talking about lowering their costs. They probably just haven't been able to lower their costs.

You have to keep in mind that about 99% of their announcements are targeted towards investors (their most important revenue source..), so they're not going to be afraid to mention metrics that make the business look better.

Re: I think Anthropic and OpenAI have found product-market fit

#507

They've got, ballpark, $5t to $10t to make back in the next 5 years, or the hardware buildouts will start getting written down. This means we're going to need $1t+ per year in spending, per year, on tokens. 200m knowledge workers in the world, 30m developers. We're talking about a world where you need 5% of every knowledge workers salary to go into tokens. 20% if you're a developer. That's a _huge_ shift. Most people…

I work for a tiny little company ($150MM annual rev with 9% net) and we are already looking at dropping $100k on hardware to run local models because, for us, they're "good enough." Our estimated spend for AIaaS would exceed that cost in less than a year. In a few years, there will be hardware capable of running frontier models good enough for most things at accessible prices for even tiny companies.

[dead]

Re: I think Anthropic and OpenAI have found product-market fit

#508

> Anthropic are strongly rumored to be about to have their first profitable quarter No, its more like their own leak to WSJ and according to Ed Zitron -> seems to be heavily engineered via non-GAAP practices such as counting potential , but not realised revenue as actual revenue - the stuff for which I would be arrested if I did it at my company. Also it appears according to Ed's analysis - strangely they seem to be…

Bubble popped when they increased prices. IPO may help cover some of the costs, but AI is very elastic and can be swapped out for any other company second to second. Which is why I think they bought up ram and disks like they did, to starve out competition and local models.

Re: I think Anthropic and OpenAI have found product-market fit

#509
post #120

Earlier quoted context omitted.

The bottleneck has moved from producing a thing that works to knowing that the thing was the right thing to build. The more of the latter they can take on, the fewer knowledge workers are needed at all . So rather than 5% of every knowledge worker's salary going into tokens, 100% of the knowledge worker's total employment cost goes into tokens and you get a 20x productivity boost as a theoretical minimum across those…

Who pays for that value, and from what, if all knowledge workers lose their jobs? It sounds like the economy would largely reduce to the small minority class of independently wealthy people.

See https://news.ycombinator.com/item?id=48300427 for an alternative take. I don't think either direction is inevitable, yet.

To follow on from that comment, if the growth in breadth of capacity of AI leads to a decrease in the risk of running a smaller business, which I don't think is an unreasonable prediction, then it's not inevitable people do lose their jobs. Employers get smaller, higher-leverage, and more plentiful.

Re: I think Anthropic and OpenAI have found product-market fit

#510
post #499
post #190

Earlier quoted context omitted.

Oh I'm absolutely taking advantage of the fact that "product-market fit" has a bit of a nebulous meaning here. It's a great hook to build an article around. My core point is more that April 2026 was the point when Anthropic and OpenAI finally appeared to have figured out a credible business model.

> My core point is more that April 2026 was the point when Anthropic and OpenAI finally appeared to have figured out a credible business model. How so? What's specifically changed? We still don't know what their unit economics are and everything you've documented is basically speculation at this point.

> What's specifically changed?

1. Both Anthropic and OpenAI significantly increased the prices of their latest models. They're clearly not trying to offer the lowest-price-possible to drum up demand any more.

2. Both Anthropic and OpenAI no longer let enterprise companies buy discounted almost-all-you-can-eat subscriptions. Those big enterprises are now paying full API prices.

3. According to reasonably well-sourced leaks, Anthropic may be about to have their first profitable quarter.

And I didn't even say "profitable", I said "credible business model". I think getting companies to spend hundreds of dollars per month per seat, WITHOUT crazy subscription discounts, is a credible business model.

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