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The current AI pricing was always going to go away

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Re: The current AI pricing was always going to go away

#41

Post by energy123 »

kimixa wrote: post #29
adamesque wrote: post #7

It's hard to take this piece seriously if he's citing _Ed Zitron's_ math, and equally hard to make the blanket statement that flat-rate plans = "the current AI pricing". But yes, those pricing models were pretty silly and unsustainable.

Get back to me when there's an AI company that's actually profitable and we can compare their service and pricing. Claiming that there's some small subset of their services (like inference per token) that's "profitable" doesn't mean anything when it relies on everything else that company is still paying for. If you could make money from it at current prices - why aren't they? Otherwise it's just "how much they're wil…

The problem with fixating on earnings as you're doing is that it's a bad metric for a growth company. COGS is much more important. What you're doing is setting it up so every growth company is terrible until they've matured into a 20 year old company. That's obviously dumb.

Re: The current AI pricing was always going to go away

#42

Post by jplusequalt »

PiRho3141 wrote: post #8

This is where open source models are important. The latest deepseek v4 pro model is 2-5x cheaper than Claude Sonnet 4.6. Cursor's Compose 2.5 that was just recently released is 6x cheaper than Sonnet. The state of the art models are going to get better and more expensive and smaller models are going to get cheaper. There will be a point where the intelligence of both the cheap and state of the art models are indistin…

>The latest deepseek v4 pro model is 2-5x cheaper than Claude Sonnet 4.6. Cursor's Compose 2.5 that was just recently released is 6x cheaper than Sonnet.

The only way you're running Deepseek V4 with comparable quality/performance is through OpenRouter, at which point you're still susceptible to being price gouged in the future, or by spending >$20k on hardware.

Re: The current AI pricing was always going to go away

#43

Post by gruez »

PiRho3141 wrote: post #8

This is where open source models are important. The latest deepseek v4 pro model is 2-5x cheaper than Claude Sonnet 4.6. Cursor's Compose 2.5 that was just recently released is 6x cheaper than Sonnet. The state of the art models are going to get better and more expensive and smaller models are going to get cheaper. There will be a point where the intelligence of both the cheap and state of the art models are indistin…

>The latest deepseek v4 pro model is 2-5x cheaper than Claude Sonnet 4.6. Cursor's Compose 2.5 that was just recently released is 6x cheaper than Sonnet.

It's ironic how in a thread about "AI subsidies" that people don't think free model releases from AI don't count as subsidies. Whatever AI winter that would cause AI companies to stop subsiding tokens, would probably cause other AI labs to stop doing free model releases. They might not be able to un-release the current crop of open models, but assuming proprietary model development still happens, they'll quickly go obsolete.

Re: The current AI pricing was always going to go away

#44

Post by gruez »

greenmilk wrote: post #14
PiRho3141 wrote: post #8

This is where open source models are important. The latest deepseek v4 pro model is 2-5x cheaper than Claude Sonnet 4.6. Cursor's Compose 2.5 that was just recently released is 6x cheaper than Sonnet. The state of the art models are going to get better and more expensive and smaller models are going to get cheaper. There will be a point where the intelligence of both the cheap and state of the art models are indistin…

> The state of the art models are going to get better and more expensive and smaller models are going to get cheaper. Why do you think this will be true? Right now I see the major US labs betting on gaining an advantage from having way more compute, and I see Chinese labs competing with one another in a resource-scarce environment, so they place much more emphasis on compute-efficiency. But the supply chains that fee…

>so they place much more emphasis on compute-efficiency.

Maybe on training, but on inference they use more tokens than comparable western models.

https://artificialanalysis.ai/?output-tokens=intelligence-vs...

Re: The current AI pricing was always going to go away

#45

Post by gruez »

nightski wrote: post #20
greenmilk wrote: post #14

Earlier quoted context omitted.

> The state of the art models are going to get better and more expensive and smaller models are going to get cheaper. Why do you think this will be true? Right now I see the major US labs betting on gaining an advantage from having way more compute, and I see Chinese labs competing with one another in a resource-scarce environment, so they place much more emphasis on compute-efficiency. But the supply chains that fee…

The labs have a perverse incentive to make things as expensive compute wise as possible. The only thing keeping this somewhat in check is competition, but it's intentionally being gatekept by locking up the supply of computing infrastructure. With 3 players it's pretty easy to collude even if indirectly. They can't burn trillions forever. Nvidia's 75% profit margins are not sustainable forever. Things will normalize,…

>The labs have a perverse incentive to make things as expensive compute wise as possible. The only thing keeping this somewhat in check is competition, but it's intentionally being gatekept by locking up the supply of computing infrastructure. With 3 players it's pretty easy to collude even if indirectly.

By all accounts the AI capex boom is justified up by actual usage, rather than some nefarious plan for "locking up the supply of computing infrastructure". Just look at people complaining about claude availability and anthropic adding various load-shedding measures a few months ago.

Re: The current AI pricing was always going to go away

#46

Post by fallpeak »

kimixa wrote: post #29
adamesque wrote: post #7

It's hard to take this piece seriously if he's citing _Ed Zitron's_ math, and equally hard to make the blanket statement that flat-rate plans = "the current AI pricing". But yes, those pricing models were pretty silly and unsustainable.

Get back to me when there's an AI company that's actually profitable and we can compare their service and pricing. Claiming that there's some small subset of their services (like inference per token) that's "profitable" doesn't mean anything when it relies on everything else that company is still paying for. If you could make money from it at current prices - why aren't they? Otherwise it's just "how much they're wil…

On OpenRouter there are 11 third-party inference providers hosting DeepSeek V4 Pro right now, of which 8 are US-based and 7 of those have zero data-retention policies (which I mention to rule out any claims of "oh they're making up the money by logging all your data"). This is a 1.6T-A49B model, so a bit bigger than Sonnet (~2/3rds the size) and a bit smaller than Opus (~3x as large). These third parties are almost perfectly interchangeable via OpenRouter as a marketplace, so they have no incentive to offer any sort of "growth pricing" below costs, and they serve it at $3.48/Mtok out.

Kimi K2.6 is 1T-A32B with a slightly less computationally efficient architecture, and is served at around $3.50/Mtok out by 9 US ZDR providers.

Unless you think that either the generally accepted size estimates for Anthropic/OpenAI models are wildly off or those companies are a lot worse at serving models efficiently, Anthropic and OpenAI are probably making around 5-8x margins on their API costs.

The cost of training new models is of course a major factor not counted here. Depending on how you want to think about that this may or may not make them net profitable. I remember one of those CEOs gave an interview a while back where they described it as a series of independent investments, where each model they train is net-positive in revenue by EOL just from its own inference, but I don't know whether that's still true or not.

Regardless, the point is that if they stopped training new models today, both Anthropic and OpenAI are making incredibly generous profits on their API inference.

Re: The current AI pricing was always going to go away

#47

Post by zozbot234 »

gruez wrote: post #43
PiRho3141 wrote: post #8

This is where open source models are important. The latest deepseek v4 pro model is 2-5x cheaper than Claude Sonnet 4.6. Cursor's Compose 2.5 that was just recently released is 6x cheaper than Sonnet. The state of the art models are going to get better and more expensive and smaller models are going to get cheaper. There will be a point where the intelligence of both the cheap and state of the art models are indistin…

>The latest deepseek v4 pro model is 2-5x cheaper than Claude Sonnet 4.6. Cursor's Compose 2.5 that was just recently released is 6x cheaper than Sonnet. It's ironic how in a thread about "AI subsidies" that people don't think free model releases from AI don't count as subsidies. Whatever AI winter that would cause AI companies to stop subsiding tokens, would probably cause other AI labs to stop doing free model rele…

The currently-released models don't really go away. Even if they collectively only release a new model every few years for the sake of influence and public image, that's plenty enough to keep the competitive aspect going.

Re: The current AI pricing was always going to go away

#48

Post by stephc_int13 »

anthonypasq wrote: post #40

Guys, we are the in the mainframe era of AI. People in the 60's thought computing was expensive too and the idea of having a computer on every desk, nevermind every pocket, nevermind every single piece of electronics in the world basically seemed like a complete pipe dream. if you told someone in the 70's their toaster would have a supercomputer it in, they would think you were crazy. in 10 years your doorknob is goi…

The main issue with this reasoning is that the hardware substrate for AI and good old computing is the same.

All governed by Moore's Law, what happened then seems extremely unlikely to happen again, the curve is a sigmoid and we're much closer to the flat end now.

Re: The current AI pricing was always going to go away

#49

Post by kimixa »

energy123 wrote: post #41
kimixa wrote: post #29

Earlier quoted context omitted.

Get back to me when there's an AI company that's actually profitable and we can compare their service and pricing. Claiming that there's some small subset of their services (like inference per token) that's "profitable" doesn't mean anything when it relies on everything else that company is still paying for. If you could make money from it at current prices - why aren't they? Otherwise it's just "how much they're wil…

The problem with fixating on earnings as you're doing is that it's a bad metric for a growth company. COGS is much more important. What you're doing is setting it up so every growth company is terrible until they've matured into a 20 year old company. That's obviously dumb.

From what I've seen pretty much every company is limited by hardware supply, to the level where's there complaints from current customers about the speed of new customer growth is exceeding their ability to service them properly.

And "growth at all costs" makes sense if there's lock in and you can monetize those "now locked-in users" later - but that doesn't really seem true on the consumer side. It seems pretty trivial to switch out which model and provider on the consumer side.

Any "lock in" has then to be on the model or inference side, and that's still advancing in multiple areas from so many different sources I'm not sure I'm comfortable saying that will also be a "winner takes all" situation either.

My approach is generally "enjoy using it while it's cheap and subsidized, but understand that might not last forever". If it does remain cheap after the subsidies end, great, you can just keep using it. But if it doesn't and you've lost the ability to work without you'll be in for a world of hurt.

Re: The current AI pricing was always going to go away

#50

Post by tekacs »

> Anthropic’s CFO testified under oath this March that the company spent $10 billion on compute and made $5 billion in revenue (Ed Zitron has the math). The labs are underwater on inference. They’re raising prices to keep the lights on.

'The labs are underwater on inference' is an absurd thing to say whilst not separating the cost of _compute_ out into training and inference.

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