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They're selling a commodity product in a Red Queen's Race. OpenAI, Anthropic, and whatever others get spun up while the gold rush is on are each building costly

They're selling a commodity product in a Red Queen's Race. OpenAI, Anthropic, and whatever others get spun up while the gold rush is on are each building costly models at a vast cost to try to get a bit ahead of each other. The economics of this are ugly. The business of building massive LLMs looks more like air transport than the dot com gold rush in the '90s. There will probably be much useful stuff in the wreckage when it's all over, but I've not seen much to inspire confidence that the useful stuff will include profitable companies. This looks like it has all the makings of another WeWork, only this time with an epochal AI winter as the aftermath.

serf 2y ago
this whole thing produced some useful tools, if nothing else. I'll be able to use a few of them to keep warm during the next AI winter -- much like every other AI winter. did anything good come from wework?
- cj 2y ago
  > did anything good come from wework? More coworking spaces.
- MangoCoffee 2y ago
  Tequila sales have increased
- edm0nd 2y ago
  >did anything good come from wework? Adam and Rebekah Neumann got exposed for being the frauds that they are.
itsoktocry 2y ago
>This looks like it has all the makings of another WeWork, only this time with an epochal AI winter as the aftermath. I'm as cynical as it gets on this forum, as evidenced by my comment history. But you're comparing these AI companies to WeWork? Really? WeWork was a real estate company operating in a historically favourable environment (0% interest rates) pretending to be a tech company. They literally rented office space. What do they have in common? I notice there's a new generation of "grey beard" programmers constantly talking about how "useless" AI is for programming, and they can do everything faster. Meanwhile, there are tons of us out there who are paying $20, $30, $50 per month and upwards for these tool as they are, and wouldn't want to go without. Ever. And we have no idea where it's going to go. Maybe you're missing something?
- candiddevmike 2y ago
  These AI companies are playing the same game of selling $2 to earn $1.
- Spivak 2y ago
  What they have in common is that they're selling a (now) commodity product for margins that will be driven further down over time as other companies catch up and the huge leaps stop happening. With WeWork it was other old-guard real-estate managers realizing they can do what WeWork does for cheaper. Comparing to airlines was fine, but you take issue with a comparison to real-estate? WeWork was also beloved by their customers and had leadership who were a bit off the rails. The fact that switching models is changing one string in AWS bedrock means that nobody is going to be able to charge a significant premium.
- 2muchcoffeeman 2y ago
  AI is a polarising. And the danger with such things is once you’ve made up your mind, it’s hard to look at things from the other side regardless of whether you are for or against it. And arguments supporting either POV starts to look like shilling.
  - aleph_minus_one 2y ago
    > AI is a polarising. I'd rather argue that every hyped topic is polarizing, and your argument can be adjusted to basically every hugely hyped topic.
    - 2muchcoffeeman 2y ago
      Maybe. Still means that most people will not be able to think rationally about it.
- disgruntledphd2 2y ago
  > Meanwhile, there are tons of us out there who are paying $20, $30, $50 per month and upwards for these tool as they are, and wouldn't want to go without. I'm paying for Claude, which I find super helpful (although mostly for side-projecty stuff rather than dayjob). I'd definitely pay double what it costs today, particularly if I went back to shorter-term environments where I think it shines. If you can't hook it up to your codebase/you write in a language where it's not great (it doesn't seem good at Elisp at all, at all) then I could see how people might not find the value. Nonetheless, despite finding these tools useful, I too am sceptical about whether or not there's a valuable business there. For context, I said this about Uber, WeWork and a bunch of other startups that never really monetised. Note that I also said that about Facebook, where I was completely wrong.
digitaltrees 2y ago
Maybe but if you read the article OpenAI went from 1.6 billion to 3 billion in one year and is projected to be at $11 billion at the end of 2025. Commodities can be massive businesses with competitive moats. Oil is a commodity BP and Exxon do just fine financially speaking.
- criley2 2y ago
  $11 billion revenue in 2025, but how much in costs? In 2024, they are projected to bring in $3.4 billion in revenue and lose $5 billion dollars. They just had a massive fundraising round for $6.6 billion which at the current costs and growth is what, 6-8 months of spend? If they bring in $11 billion in 2025, I expect them to lose at least $18 billion dollars. Good luck!
  - matwood 2y ago
    Why do you think cost would expand linearly with revenue? That's typically not how technology companies work. Compute gets cheaper over time and R&D expenses eventually cap out.
    - jazzyjackson 2y ago
      But OpenAIs R&D isnt going to level off until they reach AGI
    - criley2 2y ago
      We're in the "add billions in dollars of datacenters" and "spin up nuclear power plants" level of infrastructure needed for their growth, so if anything, I might be underestimating the costs if they grow as much as Sam claims they can. Didn't Sam ask TSMC to spend $7 trillion on new fabs? By comparison, $18 billion/yr spend seems very small.
  - patwolf 2y ago
    How will they continue to operate into the future with those kinds of losses? More rounds of funding? Loans? Charge more? Most companies with losses that big would be bankrupt, e.g. GM in 2009.
JeremyNT 2y ago
It's unfathomable to me that any of these companies have any kind of moat. People here like to slag on google for being late to the chatbot party, but they've been using ML the entire time and integrating it into various products for ages. I kind of wonder if the only reason they were "behind" was the lawyers were less brazen about the copyright situation. I agree with the commodity take, and I personally bet on Google eating everybody else's lunch eventually, because there's a lot of other business behind them and they can afford to undercut competitors. They aren't a one trick pony.
- __loam 2y ago
  I've heard the reason Google is behind is because they knew LLMs were bullshit, or not good enough to productionize.
- caeril 2y ago
  Google produces the most "safe" ( e.g. functionally useless ) models available. The market demands models that don't fail constantly with HAL-like "Sorry, Dave, I cannot do that for you" moralizing responses. An API that is used for mission-critical purposes and that randomly fails with "HTTP/1.1 406 You Are A Terrorist And/Or Hitler" is a BUG, and the market will coalesce around models that don't have this bug.

serf 2y ago

this whole thing produced some useful tools, if nothing else. I'll be able to use a few of them to keep warm during the next AI winter -- much like every other AI winter. did anything good come from wework?

cj 2y ago
> did anything good come from wework? More coworking spaces.
MangoCoffee 2y ago
Tequila sales have increased
edm0nd 2y ago
>did anything good come from wework? Adam and Rebekah Neumann got exposed for being the frauds that they are.

itsoktocry 2y ago

>This looks like it has all the makings of another WeWork, only this time with an epochal AI winter as the aftermath. I'm as cynical as it gets on this forum, as evidenced by my comment history. But you're comparing these AI companies to WeWork? Really? WeWork was a real estate company operating in a historically favourable environment (0% interest rates) pretending to be a tech company. They literally rented office space. What do they have in common? I notice there's a new generation of "grey beard" programmers constantly talking about how "useless" AI is for programming, and they can do everything faster. Meanwhile, there are tons of us out there who are paying $20, $30, $50 per month and upwards for these tool as they are, and wouldn't want to go without. Ever. And we have no idea where it's going to go. Maybe you're missing something?

candiddevmike 2y ago
These AI companies are playing the same game of selling $2 to earn $1.
Spivak 2y ago
What they have in common is that they're selling a (now) commodity product for margins that will be driven further down over time as other companies catch up and the huge leaps stop happening. With WeWork it was other old-guard real-estate managers realizing they can do what WeWork does for cheaper. Comparing to airlines was fine, but you take issue with a comparison to real-estate? WeWork was also beloved by their customers and had leadership who were a bit off the rails. The fact that switching models is changing one string in AWS bedrock means that nobody is going to be able to charge a significant premium.
2muchcoffeeman 2y ago
AI is a polarising. And the danger with such things is once you’ve made up your mind, it’s hard to look at things from the other side regardless of whether you are for or against it. And arguments supporting either POV starts to look like shilling.
- aleph_minus_one 2y ago
  > AI is a polarising. I'd rather argue that every hyped topic is polarizing, and your argument can be adjusted to basically every hugely hyped topic.
  - 2muchcoffeeman 2y ago
    Maybe. Still means that most people will not be able to think rationally about it.
disgruntledphd2 2y ago
> Meanwhile, there are tons of us out there who are paying $20, $30, $50 per month and upwards for these tool as they are, and wouldn't want to go without. I'm paying for Claude, which I find super helpful (although mostly for side-projecty stuff rather than dayjob). I'd definitely pay double what it costs today, particularly if I went back to shorter-term environments where I think it shines. If you can't hook it up to your codebase/you write in a language where it's not great (it doesn't seem good at Elisp at all, at all) then I could see how people might not find the value. Nonetheless, despite finding these tools useful, I too am sceptical about whether or not there's a valuable business there. For context, I said this about Uber, WeWork and a bunch of other startups that never really monetised. Note that I also said that about Facebook, where I was completely wrong.

digitaltrees 2y ago

Maybe but if you read the article OpenAI went from 1.6 billion to 3 billion in one year and is projected to be at $11 billion at the end of 2025. Commodities can be massive businesses with competitive moats. Oil is a commodity BP and Exxon do just fine financially speaking.

criley2 2y ago
$11 billion revenue in 2025, but how much in costs? In 2024, they are projected to bring in $3.4 billion in revenue and lose $5 billion dollars. They just had a massive fundraising round for $6.6 billion which at the current costs and growth is what, 6-8 months of spend? If they bring in $11 billion in 2025, I expect them to lose at least $18 billion dollars. Good luck!
- matwood 2y ago
  Why do you think cost would expand linearly with revenue? That's typically not how technology companies work. Compute gets cheaper over time and R&D expenses eventually cap out.
  - jazzyjackson 2y ago
    But OpenAIs R&D isnt going to level off until they reach AGI
  - criley2 2y ago
    We're in the "add billions in dollars of datacenters" and "spin up nuclear power plants" level of infrastructure needed for their growth, so if anything, I might be underestimating the costs if they grow as much as Sam claims they can. Didn't Sam ask TSMC to spend $7 trillion on new fabs? By comparison, $18 billion/yr spend seems very small.
- patwolf 2y ago
  How will they continue to operate into the future with those kinds of losses? More rounds of funding? Loans? Charge more? Most companies with losses that big would be bankrupt, e.g. GM in 2009.

JeremyNT 2y ago

It's unfathomable to me that any of these companies have any kind of moat. People here like to slag on google for being late to the chatbot party, but they've been using ML the entire time and integrating it into various products for ages. I kind of wonder if the only reason they were "behind" was the lawyers were less brazen about the copyright situation. I agree with the commodity take, and I personally bet on Google eating everybody else's lunch eventually, because there's a lot of other business behind them and they can afford to undercut competitors. They aren't a one trick pony.

__loam 2y ago
I've heard the reason Google is behind is because they knew LLMs were bullshit, or not good enough to productionize.
caeril 2y ago
Google produces the most "safe" ( e.g. functionally useless ) models available. The market demands models that don't fail constantly with HAL-like "Sorry, Dave, I cannot do that for you" moralizing responses. An API that is used for mission-critical purposes and that randomly fails with "HTTP/1.1 406 You Are A Terrorist And/Or Hitler" is a BUG, and the market will coalesce around models that don't have this bug.