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AI's economics don't make sense

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Re: AI's economics don't make sense

#41

Post by loeg »

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…

> How many tokens can you realistically burn through in one chat session?

I've used single digit billions in a couple days, FWIW.

Re: AI's economics don't make sense

#42

Post by marcosdumay »

strongpigeon wrote: post #27
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…

> That's 600 million per year in revenue. According to your math, that's $600 million per day

Yes, the GP wrote the wrong unit on this place. That supports his conclusion that the pay-off would take decades, if it was actually per year, it would take several centuries.

Re: AI's economics don't make sense

#43

Post by [deleted] »

wood_spirit wrote: post #5

The general problem the average user has with a metered instead of provisioned billing model for computer services is you can’t easily control for cost overruns. From the old days customers getting stung for hosting costs when slashdotted or DOSed, to last decades microservice shock horror of the CI retry loop that burns money overnight to today’s AI that you basically have no idea how efficient the AI will be while…

[deleted]

Re: AI's economics don't make sense

#44

Post by Darwins_Toffees »

ameliaquining wrote: post #32

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...

- Reproduce academic papers - Put coding projects online for me so I can share them with friends - Determine which books in a set are missing from the school library and find where they’re cheapest online - Figure out which soccer club the team I see practicing at the local rec center belongs to and how to register my son - Design a bunch of robot-themed handwriting activities for a kindergartner who needs to practice making his uppercase and lowercase letters distinct

I'm sorry but telling me that this is what AI can do is a sad state of affairs. Like this is google level stuff.

Re: AI's economics don't make sense

#45

Post by doctorpangloss »

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…

lots of words.

do you think per token prices will go up or down in the long term? will the price per task trend down or up?

what about the price of human labor?

Re: AI's economics don't make sense

#46

Post by swader999 »

milesvp wrote: post #19

Reading this piece, I'm reminded of a podcast I heard some years ago where they were interviewing an early google marketing employee who was talking about the economics of google search. They said they'd done some surveys and concluded that they determined that the average user would get something like $20/year of value, and so that was the most they could realistically charge for search. Meanwhile, they could make s…

The output won't be read by humans (and increasingly this is the case in my own use) so I don't see how that works. If the output itself will be directed by the highest bidder, that doesn't work. Or if the output influences the agent's direction, that doesn't work either.

Re: AI's economics don't make sense

#47

Post by zozbot234 »

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…

It's not even a fixed cost per token (even though it's billed that way, and that's still miles better than a fixed-price all you can eat). You're incurring a cost that's proportional to generated tokens times the context for each (plus the prefill cost for any uncached input), so the expense grows quadratically with your average generated context.

This all becomes extremely visible when trying to do agentic coding with local language models - you quickly realize that controlling context length and model size is just as important as avoiding wasted effort. The real scam is not AI Q&A ala ChatGPT, that's actually quite viable - though marginally less so as conversations grow longer. It's agentic coding with SOTA models and huge contexts.

Re: AI's economics don't make sense

#48

Post by bwestergard »

loeg wrote: post #41
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…

> How many tokens can you realistically burn through in one chat session? I've used single digit billions in a couple days, FWIW.

What sort of work were you doing?

Re: AI's economics don't make sense

#49

Post by GardenLetter27 »

doctorpangloss wrote: post #45
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…

lots of words. do you think per token prices will go up or down in the long term? will the price per task trend down or up? what about the price of human labor?

The price of everything will go down. That is the beauty of the free market.

Re: AI's economics don't make sense

#50

Post by doctoboggan »

christkv wrote: post #17

I'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.

Using Claude code with Opus 4.7 and xhigh effort for a few hours will definitely cost hundreds of usd.

I am not sure if you would call claude code "an auto loop", but you don't need to be running something crazy like gas town to spend a lot of tokens with Claude.

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