AI's economics don't make sense • Hacker News Board

Re: AI's economics don't make sense

#31

Post by belval » Tue, Apr 28, 2026, 5:50 PM UTC

ToucanLoucan wrote: post #18

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…

> 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…

> 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

That math is not mathing. $15/hour/user, with 5M devs, 8hrs and 240 working days per year that is 144B in revenue.

Re: AI's economics don't make sense

#32

Post by ameliaquining » Tue, Apr 28, 2026, 5:50 PM UTC

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...

Re: AI's economics don't make sense

#33

Post by ethin » Tue, Apr 28, 2026, 5:51 PM UTC

gruez wrote: post #14

wonderwhyer wrote: post #2

Yeah. And weird pricing seems like it's winding down. It's interesting to compare it to electricity. Basically Anthropic was selling a flat fee electricity subscription, and when someone started connecting expensive washing machines (OpenClaw) to their subscriptions, instead of changing the pricing model, they banned washing machines... I wonder if we will get to "electricity" style pricing for AI. What makes electri…

>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.

Even now they are insanely ambiguous with respect to their usage limits. They don't from what I know openly disclose them anywhere, so them saying "5x increase" is utterly meaningless, alongside "20x" or "10x" or whatnot, because we don't know what "x" is.

Re: AI's economics don't make sense

#34

Post by matchagaucho » Tue, Apr 28, 2026, 5:51 PM UTC

Same debate as the dot-com era.

Customer: “I don’t want to pay more than $100/mo for my website” Developer: “What are your goals?” Customer: “1M daily visits, 1,000 monthly signups.”

And we've spent the past 25 years offering serverless compute, auto-scaling, pay-as-you-go for AWS and Internet infrastructure. And the economics are still a hard sell.

Re: AI's economics don't make sense

#35

Post by swader999 » Tue, Apr 28, 2026, 5:51 PM UTC

mNovak wrote: post #25

Do 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…

I don't think these companies will give this information up until their hand is forced with an S-1 when they want to IPO. So stay tuned...

Re: AI's economics don't make sense

#36

Post by ToucanLoucan » Tue, Apr 28, 2026, 5:52 PM UTC

vidarh wrote: post #26

ToucanLoucan wrote: post #18

Earlier quoted context omitted.

> 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.

Quite right, honestly not sure how I fucked that up so bad but I'll own it. Okay so all we need is every coder + 0.6 million more or so in the United States, subscribed to this for 8 hours a day, and the business model can work.

That still feels incredibly optimistic given how split the community at large seems to be about how good this tech is, and it assumes all those developers also all work for firms large enough to pay for all of that.

However we are still very much in back of napkin math. We haven't even gone into what it costs to provide these services, how much it's going to cost yet for all these datacenters to be built, how much electricity and water they're going to rip through, their own employees and basic overhead, and all the rest. So IMO, we've now elevated it from "hopeless" to "this could work if a whole lot of other things line up really well."

Re: AI's economics don't make sense

#37

Post by swader999 » Tue, Apr 28, 2026, 5:52 PM UTC

wonderwhyer wrote: post #2

Yeah. And weird pricing seems like it's winding down. It's interesting to compare it to electricity. Basically Anthropic was selling a flat fee electricity subscription, and when someone started connecting expensive washing machines (OpenClaw) to their subscriptions, instead of changing the pricing model, they banned washing machines... I wonder if we will get to "electricity" style pricing for AI. What makes electri…

The Uber subscription analogy works well too.

Re: AI's economics don't make sense

#38

Post by threepts » Tue, Apr 28, 2026, 5:53 PM UTC

I thought this burning of cash was all an excuse for the exponential growth we saw in the last 6 years.

They went from GPT 2 a text only, goldfish-esque memory at a 8th grade reading level to what we have today, GPT 5, multimodality + a token window encompassing a enclyopedia and a Doctorate/Masters level of mastery in major subjects.

The economics are probably betting on this exponential growth to continue, which if it fails, the cash would burn.

Re: AI's economics don't make sense

#39

Post by Glyptodon » Tue, Apr 28, 2026, 5:57 PM UTC

I think there's another route this goes. At $7k a year or more per eng in token use, I think it's very reasonable to buy engineers machines with obscene GPUs and RAM and run models locally. And if it doesn't make sense now, someone will figure it out and save companies $10k+/eng over 3 years.

Re: AI's economics don't make sense

#40

Post by swader999 » Tue, Apr 28, 2026, 5:57 PM UTC

asah wrote: post #4

meh - by this logic, every new tech and startup ever is a "scam" The truth is that the AI companies are gambling that inference cost will continue following a hyper version of Moore's Law, e.g. Google TurboQuant. The countervailing thesis is that frontier models are consuming more and more compute. The deepest truth: you often don't need a frontier model to get commercially acceptable results from AI. Thus, bring on…

We work comes to mind. The math is fairly easy if we know what a company like OpenAI's datacenter commitments are, what their sub and token revenue is right now and what their operation costs are. This is very basic and if you had that info you would know exactly if we are in bubble or not. Waiting for the S-1's...