It makes sense when you realize the goal is not the consumer but large gov and enterprise contracts.
AI's economics don't make sense
21–30 of 201 posts
Re: AI's economics don't make sense
#22Zitron misunderstands the economics of models. Inference costs have dropped 99% in less than 2 years. Models are being commoditized faster than any technology in history.
A $20 subscription 2 years ago is not providing the same level of intelligence you're getting today.
Every major lab knows open source models are 6 months behind (See Google's "We have no moat") and none of them plan to make money on inference. Companies are subsidizing users to create moats that persist when models are essentially free for most everyday use.
Re: AI's economics don't make sense
#23The 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…
> it doesn't move the needle much on other fixed and variable costs of a data center
I wonder what the rough costs of a data center look like over the lifetime of one GPU generation?
10% building
60% GPU
30% power
I haven't gone looking for that information, but I haven't run across it either.
Re: AI's economics don't make sense
#24I am a paying subscriber to Ed Zitron and I enjoy his writing a lot. He should at some point admit that not everything is bullshit and there is definitely a business model to it. It is fun to read, though
He has a fun writing style but has so many willful errors, and is so committed to one point of view regardless of the facts, that his writing seems kind of worthless.
I soured on him when he could not calculate cumulative revenue on an exponential curve, ignored everyone who showed him how to calculate it, and then kept writing that Anthropic’s revenue numbers are fake based on his inability to do math.
It’s too bad because any heavily hyped industry needs good critics (think Ida Tarbell to Rockefeller) but they should be honest critics, and he’s not, which really undermines not only his but others’ criticism of the industry.
Re: AI's economics don't make sense
#25Do we know the breakdown of revenue from API vs subscriptions for OAI/Anthropic? That seems very relevant, since this entire article seems to be on the premise that users are only willing to pay for a subsidized subscription and would never pay the 'true' token cost.
The internet seems to be saying that 70%+ of Anthropic revenue is per-token metered API, which would largely invalidate the article, but I can't find a solid source.
Re: AI's economics don't make sense
#26There'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…
> 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 salar…
By your numbers, it'd be $120/day per developer * 5 million = $600m per day, not per year.
Of course people don't work every day, but even with European-level holidays that number is off by a factor of 240 or so.
Re: AI's economics don't make sense
#27There'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…
> 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 salar…
> That's 600 million per year in revenue.
According to your math, that's $600 million per day
Re: AI's economics don't make sense
#28I'm just flabbergasted at the massive inefficient usage of tokens. What are people doing to spend 500 usd/day in tokens. I just don't understand what you could possibly be doing that would be not complete spagetti at the end if you run something in an autoloop.
> What are people doing to spend 500 usd/day in tokens
1) They're lying
2) Status signalling
Re: AI's economics don't make sense
#29I am a paying subscriber to Ed Zitron and I enjoy his writing a lot. He should at some point admit that not everything is bullshit and there is definitely a business model to it. It is fun to read, though
It's good to have contrarian viewpoints, but Ed Zitron is so blinded by his AI hate that his articles should be treated not just with skepticism, but heavy suspicion.
Re: AI's economics don't make sense
#30It makes perfect sense, if you treat it as a Ponzi scheme.
[0]: https://www.wheresyoured.at/why-are-we-still-doing-this/