7 ms·

I’m bullish on AI as tech but folks are starting to sniff out that the financials of everything going on at the moment aren’t sustainable for much longer. I ho

by JCM9 10mo ago

I’m bullish on AI as tech but folks are starting to sniff out that the financials of everything going on at the moment aren’t sustainable for much longer. I hope we have more of a “reality correction” than full blown bubble bursting, but the data is increasingly looking like we’re about to have a massive implosion that wipes out a generation of startups and sets the VC ecosystem back a decade.

mjr00 10mo ago
The most sobering statistic I've seen is that the entire combined amount of consumer spending on AI products is currently less than the revenue of Genshin Impact.
- bobbiechen 10mo ago
  Indeed, bad for consumer AI. But I would expect B2B spending on AI dwarfs consumer spending, I wonder what that comparable B2B revenue would be.
  - mjr00 10mo ago
    It certainly does but B2B revenue can also be much more "fake", in a sense. i.e. if Microsoft spends $500 million on OpenAI, which makes OpenAI spends $500 million on Azure... where does the profit come from? There have been a few interesting articles (which I unfortunately can't look up right now) recently describing how incestuous a lot of the B2B AI spend is, which is reminiscent of the dot-com bubble.
- fullshark 10mo ago
  AI's consumer monetization will be ad-based or as a feature for a product users want to pay for. Businesses will be the primary customer for AI.
- underlipton 10mo ago
  I would be curious to see how it compares to the combined revenue of gay furry gacha games and VNs. Are we talking parity, multiples, or orders of magnitude? Anything other than the latter would be a bucket of cold water.
- maeln 10mo ago
  Well, Genshin Impact is at the forefront of predatory B2C business practice. It is a gacha game, engineered to extract as much money from its prey as possible. On the other end, most AI company can afford to be generous with their user/consumer right now because they are being bankrolled by magic money. The real test will be when they have to start the enshitification. Will the product still be enough to convince consumer to spend an amount of money guarantying a huge margin for the service provider ? Will they have to rely on whale desperately needing to talk to their IA girlfriend ? Or company and people who went deep into the whole vibe coding thing, and can't work without an agent ? I think it is hard to say right now. But considering the price of the hardware and running it, I don't think they will have to price the service insanely to at least be profitable. To be as profitable as the market seems to believe, that's another story.
  - tsimionescu 10mo ago
    Isn't AI just as bad if not worse here? I'd bet there are far more people who have been duped by ChatGPT (and others) to think it's their friend, lover, or therapist than people who are addicted to Genshin Impact.
  - mjr00 10mo ago
    Regardless of your feelings on Genshin/gacha (which I agree is predatory), the point is that the revenue of a single game developed by a few hundred people is currently making more money than an entire industry which is "worth" trillions of dollars, according to the stock market, and is, according to Sam Altman, so fundamentally important to the US economy that the US government is an insurer of last resort who will bail out AI companies if their stock price falls too much.
- HDThoreaun 10mo ago
  The money is in business licenses. Why only look at consumer? Consumers are mostly still using the free version which exists to convince employers to pay.
- uhfraid 10mo ago
  wow, that is alarming
georgemcbay 10mo ago
> I’m bullish on AI as tech I'm not bullish in the stock market sense. Which isn't the same as saying LLMs and related technology aren't useful... they are. But as you mentioned the financials don't make sense today, and even worse than that, I'm not sure how they could get the financials to make sense because no player in the space on the software side has a real moat to speak of, and I don't believe its possible to make one. People have preferences over which LLM does better at job $XYZ, but I don't think the differences would stand up to large price changes. LLM A might feel like its a bit better of a coding model than LLM B, but if LLM A suddenly cost 2x-3x, most people are going to jump to LLM B. If they manage to price fix and all jump in price, I think the amount of people using them would drop off a cliff. And I see the ultimate end result years from now (when the corporate LLM providers might, in a normal market, finally start benefiting from a cross section of economies of scale and their own optimizations) being that most people will be able to get by using local models for "free" (sans some relatively small buy-in cost, and whatever electricity they use).
- gishh 10mo ago
  I think this is the rational take that everyone seems to be ignoring.
tracker1 10mo ago
I don't know about a decade... the dotcom bubble bursting was pretty close to normal within 5 years or so. Still a long time, and from personal experience the 50% pay cut from before and a year later was anything but fun.
- mr_toad 10mo ago
  The market as a whole always recovers. But individual companies, or even entire industries can vanish without a trace. So betting on the entire market is a fairly safe bet, long-term. Betting on OpenAI is much more risky.
hvb2 10mo ago
The tech is way underpriced right now. It's basically a subsidized market right now, with the money flowing in coming from the private sector. The problem here is that it remains to be seen who is willing to pay for the service once it's priced at cost or even with a margin. And based on valuations of AI companies one would expect a huge margin.
- energy123 10mo ago
  You're saying the unit economics are bad?
- refulgentis 10mo ago
  It's not subsidized, lol. Generally, I worry HN is in a dark place with this stuff - look how this thread goes, ex. descendant of yours is at "Why would I ever pay for this when it hallucinates." I don't understand how you can be a software engineer and afford to have opinions like that. I'm worried for those who do, genuinely, I hope transitions out there are slow enough, due to obstinance, that they're not cast out suddenly without the skills to get something else.
  - philipwhiuk 10mo ago
    > It's not subsidized, lol. It's subsidised by VC funding. At some point the gravy train stops and they have to pivot to profit so that the VCs deliver return-on-investment. Look at Facebook shoving in adverts, Uber jacking up the price, etc. > I don't understand how you can be a software engineer and afford to have opinions like that I don't know how you can afford not to realise that there's a fixed value prop here for the current behaviour and that it's potentially not as high as it needs to be for OpenAI to turn a profit. OpenAI's ridiculous investment ability is based on a future potential it probably will never hit. Assuming it does not, the whole stack of cards falls down real quick. (You can Ctrl-C/Ctrl-V OpenAI for all the big AI providers)
    - anoncareer0212 10mo ago
      This is all about OpenAI, not about AI being subsidized...with some sort of directive to copy/paste "OpenAI" for all the big AI providers? (presumably you meant s/OpenAI/$PROVIDER?) If that's what you meant: Google. Boom. Also, perhaps you're a bit new to industry, but that's how these things go. They burn a lot of capital building it out b/c they can always fire everyone and just serve at cost -- i.e. subsidizing business development is different from subsiziding inference, unless you're just sort of confused and angry at the whole situation and it all collapses into everyone's losing money and no one will admit it.
moduspol 10mo ago
At this point I'm just hoping we can continue to postpone reality until after Christmas.

by JCM9 10mo ago

mjr00 10mo ago

The most sobering statistic I've seen is that the entire combined amount of consumer spending on AI products is currently less than the revenue of Genshin Impact.

bobbiechen 10mo ago
Indeed, bad for consumer AI. But I would expect B2B spending on AI dwarfs consumer spending, I wonder what that comparable B2B revenue would be.
- mjr00 10mo ago
  It certainly does but B2B revenue can also be much more "fake", in a sense. i.e. if Microsoft spends $500 million on OpenAI, which makes OpenAI spends $500 million on Azure... where does the profit come from? There have been a few interesting articles (which I unfortunately can't look up right now) recently describing how incestuous a lot of the B2B AI spend is, which is reminiscent of the dot-com bubble.
fullshark 10mo ago
AI's consumer monetization will be ad-based or as a feature for a product users want to pay for. Businesses will be the primary customer for AI.
underlipton 10mo ago
I would be curious to see how it compares to the combined revenue of gay furry gacha games and VNs. Are we talking parity, multiples, or orders of magnitude? Anything other than the latter would be a bucket of cold water.
maeln 10mo ago
Well, Genshin Impact is at the forefront of predatory B2C business practice. It is a gacha game, engineered to extract as much money from its prey as possible. On the other end, most AI company can afford to be generous with their user/consumer right now because they are being bankrolled by magic money. The real test will be when they have to start the enshitification. Will the product still be enough to convince consumer to spend an amount of money guarantying a huge margin for the service provider ? Will they have to rely on whale desperately needing to talk to their IA girlfriend ? Or company and people who went deep into the whole vibe coding thing, and can't work without an agent ? I think it is hard to say right now. But considering the price of the hardware and running it, I don't think they will have to price the service insanely to at least be profitable. To be as profitable as the market seems to believe, that's another story.
- tsimionescu 10mo ago
  Isn't AI just as bad if not worse here? I'd bet there are far more people who have been duped by ChatGPT (and others) to think it's their friend, lover, or therapist than people who are addicted to Genshin Impact.
- mjr00 10mo ago
  Regardless of your feelings on Genshin/gacha (which I agree is predatory), the point is that the revenue of a single game developed by a few hundred people is currently making more money than an entire industry which is "worth" trillions of dollars, according to the stock market, and is, according to Sam Altman, so fundamentally important to the US economy that the US government is an insurer of last resort who will bail out AI companies if their stock price falls too much.
HDThoreaun 10mo ago
The money is in business licenses. Why only look at consumer? Consumers are mostly still using the free version which exists to convince employers to pay.
uhfraid 10mo ago
wow, that is alarming

georgemcbay 10mo ago

> I’m bullish on AI as tech I'm not bullish in the stock market sense. Which isn't the same as saying LLMs and related technology aren't useful... they are. But as you mentioned the financials don't make sense today, and even worse than that, I'm not sure how they could get the financials to make sense because no player in the space on the software side has a real moat to speak of, and I don't believe its possible to make one. People have preferences over which LLM does better at job $XYZ, but I don't think the differences would stand up to large price changes. LLM A might feel like its a bit better of a coding model than LLM B, but if LLM A suddenly cost 2x-3x, most people are going to jump to LLM B. If they manage to price fix and all jump in price, I think the amount of people using them would drop off a cliff. And I see the ultimate end result years from now (when the corporate LLM providers might, in a normal market, finally start benefiting from a cross section of economies of scale and their own optimizations) being that most people will be able to get by using local models for "free" (sans some relatively small buy-in cost, and whatever electricity they use).

gishh 10mo ago
I think this is the rational take that everyone seems to be ignoring.

tracker1 10mo ago

I don't know about a decade... the dotcom bubble bursting was pretty close to normal within 5 years or so. Still a long time, and from personal experience the 50% pay cut from before and a year later was anything but fun.

mr_toad 10mo ago
The market as a whole always recovers. But individual companies, or even entire industries can vanish without a trace. So betting on the entire market is a fairly safe bet, long-term. Betting on OpenAI is much more risky.

hvb2 10mo ago

The tech is way underpriced right now. It's basically a subsidized market right now, with the money flowing in coming from the private sector. The problem here is that it remains to be seen who is willing to pay for the service once it's priced at cost or even with a margin. And based on valuations of AI companies one would expect a huge margin.

energy123 10mo ago
You're saying the unit economics are bad?
refulgentis 10mo ago
It's not subsidized, lol. Generally, I worry HN is in a dark place with this stuff - look how this thread goes, ex. descendant of yours is at "Why would I ever pay for this when it hallucinates." I don't understand how you can be a software engineer and afford to have opinions like that. I'm worried for those who do, genuinely, I hope transitions out there are slow enough, due to obstinance, that they're not cast out suddenly without the skills to get something else.
- philipwhiuk 10mo ago
  > It's not subsidized, lol. It's subsidised by VC funding. At some point the gravy train stops and they have to pivot to profit so that the VCs deliver return-on-investment. Look at Facebook shoving in adverts, Uber jacking up the price, etc. > I don't understand how you can be a software engineer and afford to have opinions like that I don't know how you can afford not to realise that there's a fixed value prop here for the current behaviour and that it's potentially not as high as it needs to be for OpenAI to turn a profit. OpenAI's ridiculous investment ability is based on a future potential it probably will never hit. Assuming it does not, the whole stack of cards falls down real quick. (You can Ctrl-C/Ctrl-V OpenAI for all the big AI providers)
  - anoncareer0212 10mo ago
    This is all about OpenAI, not about AI being subsidized...with some sort of directive to copy/paste "OpenAI" for all the big AI providers? (presumably you meant s/OpenAI/$PROVIDER?) If that's what you meant: Google. Boom. Also, perhaps you're a bit new to industry, but that's how these things go. They burn a lot of capital building it out b/c they can always fire everyone and just serve at cost -- i.e. subsidizing business development is different from subsiziding inference, unless you're just sort of confused and angry at the whole situation and it all collapses into everyone's losing money and no one will admit it.

moduspol 10mo ago

At this point I'm just hoping we can continue to postpone reality until after Christmas.