AI's economics don't make sense

The entire basis of this article is that generating tokens is a variable cost and that that cost will not decrease over time.

> On an economic basis, a monthly subscription only makes sense with relatively static costs.

Running a data center is a fixed expense. Whether or not people use that data center to it's capacity doesn't change how much the operator pays (electricity use factors into this, since a GPU running at 100% will use more watts than an idle one, but it doesn't move the needle much on other fixed and variable costs of a data center).

> They also assumed, I imagine, that the cost of tokens would come down over time, versus what actually happened — while prices for some models might have come down, newer “reasoning” models burn way more tokens, which means the cost of inference has, somehow, gotten higher over time.

This is backwards. When the cost of something goes down, people use it more. This is basic supply and demand. Inference has gotten cheaper already, and will continue to do so.

Companies subsidizing costs for growth happens all the time. Yes, switching to usage-based pricing instead of subscriptions sucks for customers, but enterprises will continue to pay.

>Basically Anthropic was selling a flat fee electricity subscription

No? It was flat, but with ambiguously stated limits (eg. 5x, 10x 20x). They were discriminating on how the "electricity" was used, but that's not that much different than how power companies have different rates for residential users vs industrial users.

The moves from “the subscription model for AI isn’t working given these parameters” to “a subscription model for AI can never work” to “the model was deliberately deceptive” to “it’s a fucking ripoff” is not logical. AI companies are feeling the need to get hold of spiraling costs by increasing prices and limitations. Inference hasn’t gotten cheap enough fast enough, and for some reason they feel they can’t wait longer. That doesn’t mean a subscription service can’t work: only that it will be expensive, maybe vastly so, and will need tiers based on usage with some fluidity for users to move between tiers in a given month. The model is something like HP’s “instant ink” service. Sure, there’s a question whether the moves companies are making now are worth the cost in the eyes of customers. But that’s a question of economics and timing, not a fundamental blow to monthly subscriptions as a model. The article doesn’t deal with these considerations fairly. It’s too much in the direction of a rant, with conspiracy theories thrown in.

> That said, even if a developer is burning $50/hr, many, many employees at large companies cost more than $100k/yr to employ all costs considered, so making them say 20-30% more productive can easily make that worth it for most. If the labs shave their margins ultimately to more like 20-30%, you'd have ~$15/hr in costs to use the services, and nearly every white collar job is way over 30k/yr to employ. If your salary is 80k, you probably cost the company 200k all in, so making you 15% more productive offsets the $15/hr cost.

Nobody including the connected article is making the argument that this cannot be profitable ever. People are saying "there is no way this admittedly quite interesting tool is going to be able to make back all of this money" and I think they are completely right to say that.

You can absolutely make money with this stuff, just not at this scale. The buildout for this shit has been certifiably crazy and a number of the involved firms are overleveraged for tens and even hundreds of billions of dollars.

How in the sweet fuck are you paying that off, plus giving investors dividends, selling this at $15/hour/user??? That math does not math. A quick google says there are between 1.5 and 4.4 million developers in the US alone, let's say it's 5 million, to be generous, and each of them is subbed to this for 8 hours per day, continuously. That's 600 million per year in revenue. If you took ALL that revenue, and put it towards paying down this debt, not leaving any for employee salaries, upkeep, ongoing development, it would take DECADES to pay down what OpenAI already owes.

And yes I'm sticking directly to code, because that's the only thing I've seen it be really good at. Are we really proposing that every knowledge worker on earth and every manager of such workers is going to have an autonomous agent running all the time!? To do what, make sure they don't have to read or write email? Which even just that example is bringing in a fucking mess of legal, compliance, and security violations because LLMs are not intelligent and are not capable of being properly secured.

Like I'm sorry, I cannot take this industry seriously when even the most basic back-of-napkin math is saying, nay, screaming from the rooftops that they are FUCKED.

I can speak of myself. Sometimes my session starts out well and I get the AI to cruise to 80%. But then gains after that seem impossible and what was built steadily unravels and then I get the compacting conversation message and realise that I’ve just spent a lot of money on nothing.