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Curious if anyone knows the logistics of these cloud provider/AI company deals. In this case, it seems like the terms of the deal mean that Anthropic ends up s

Curious if anyone knows the logistics of these cloud provider/AI company deals. In this case, it seems like the terms of the deal mean that Anthropic ends up spending most of the investment on AWS to pay for training. Does anthropic basically get at cost pricing on AWS? If Amazon has any margin on their pricing, it seems like this $4B investment ends up costing them a lot less, and this is a nice way to turn a cap ex investment into AWS revenue.

aiinnyc 2y ago
One hand washes the other.
tyre 2y ago
Yes exactly. This was the brilliance of the original MSFT investment into OpenAI. It was an investment in Azure scaling its AI training infra, but roundabout through a massive customer (exactly what you’d want as a design partner) and getting equity. I’m sure Anthropic negotiated a great deal on their largest cost center, while Amazon gets a huge customer to build out their system with.
- whatshisface 2y ago
  This explanation makes no sense, I could be AWS' biggest customer if they wanted to pay me for it. Something a little closer could be that the big tech companies wanted to acquire outside LLMs, not quite realizing that spending $1B on training only puts you $1B ahead.
  - raverbashing 2y ago
    Yes but Amazon is not making extra money with you being their biggest customer With Anthropic yes
    - whatshisface 2y ago
      Anthropic is getting $4B in investment in a year where their revenue was about $850M. Even if Amazon had bought them outright for that much, they would not be ahead. The fact that everybody keeps repeating the claim that Amazon is "making money" makes this appear like some kind of scam.
      - surgical_fire 2y ago
        It appears to be a scam because it sort of is. AI needs to be propped up because the bug tech cloud providers they depend on need AI to be a thing to justify their valuations. Tech is going through a bit of a slump where all things being hyped a few years ago sort of died down (crypto? VR? Voice assistants? Metaverse?). Nobody gets very hyped about any of those nowadays. I am probably forgetting a couple of hyped things that fizzled out over the years. Case in point, as much as I despise Apple, they are not all-in the AI bandwagon because it does nothing for them.
        vineyardmike 2y ago
        Go look at earnings reports for big tech companies. AI is definitely driving incremental revenue. Apple is definitely on the AI bandwagon, they just have a different business model and they’re very disciplined. Apple tends not to increase research and investment costs faster than revenue growth. You’ll also notice rumors that they’re lowering their self driving car and VR research goals.
        surgical_fire 2y ago
        > Go look at earnings reports for big tech companies. AI is definitely driving incremental revenue. Yes. Which proves my point.
        vineyardmike 2y ago
        Google Cloud revenue up 35% thanks to AI products [1,4,5]. Azure sales by a similar amount (but only 12% was AI products [2]. AWS is up too [3]. In so glad your point was that it’s not a scam, and there are billions of dollars in real sales occurring at a variety of companies. It’s amazing what publicly traded companies disclose if we only bother to read it. I’m glad we’re all not in the contrarian bubble where we have to hate anything with hype. 1. https://technologymagazine.com/articles/how-ai-surged-google-clouds-revenue-growth https://technologymagazine.com/articles/how-ai-surged-google... 2. https://siliconangle.com/2024/10/30/microsofts-ai-bet-pays-off-azure-revenue-grows-stock-falls-infrastructure-supplier-delays/ https://siliconangle.com/2024/10/30/microsofts-ai-bet-pays-o... 3. https://www.ciodive.com/news/AWS-cloud-revenue-growth-AI-demand-earnings/731781/ https://www.ciodive.com/news/AWS-cloud-revenue-growth-AI-dem... 4. https://www.reuters.com/technology/google-parent-alphabet-beats-quarterly-revenue-estimates-2024-10-29/ https://www.reuters.com/technology/google-parent-alphabet-be... 5. https://fortune.com/2024/10/29/google-q3-earnings-alphabet-sundar-pichai-revenue-profit-youtube/ https://fortune.com/2024/10/29/google-q3-earnings-alphabet-s...
- wcunning 2y ago
  That’s honestly one of the hardest things in engineering — identifying not just a customer to drive requirements, but a knowledgeable customer who can drive good requirements that work for a broader user base and can drive further expansion. Anthropic seems ideal for that, plus they act as a service/API provider on AWS.
  - antupis 2y ago
    Yeah this working with knowledgeable customer is like magic.
- dzonga 2y ago
  or simply one of the best corporate buyouts that's not subject to regulatory scrutiny. microsoft owns 49% of OpenAI - will get profits till whenever. All without subject to regulatory approval. and they get to improve Azure
  - rty32 2y ago
    A caveat -- FTC is currently looking into the deal between Microsoft and OpenAI.
    - salad-tycoon 2y ago
      A lot could change in the future and what’s the worse they could do? A billiokn dollar fine? Bold, do it and ask for forgiveness later.
- fny 2y ago
  And Amazon can always build their own LLM product down the line. Building out data centers feels like a far more difficult problem.
  - diggan 2y ago
    > Building out data centers feels like a far more difficult problem. Is it really? I'm thinking it might be more time-and-money-involved than building a "LLM product" (guess you really meant models?), but in terms of experience, we (humanity) have decades of experience building data centers, while a few years (at most) experience regarding anything LLM.
    - eddyzh 2y ago
      You might be interested in the Nobel prizes this year for (LLM relevant) science starting 70 years ago. 2 years ago was only when it went mainstream in a chat Format. Also, you/average user has been typing with helpt of a (smaller) language model for about 9 years on mobile.
  - bittermandel 2y ago
    I'd say building datacenters is a commodity these days. There's countless actors in this field who are thriving.
    - ralgozino 2y ago
      Absolutely, you can even buy a pre built datacenter from companies like Huawei or Schneider and get it shipped, plug power and network and be online.
eitally 2y ago
I am not privy to specific details, but in general there is a difference between investment and partnership. If it's literally an investment, it can either be in cash or in kind, where in kind can be like what MSFT did for OpenAI, essentially giving them unlimited-ish ($10b) Azure credits for training ... but there was quid pro quo where MSFT in turn agreed to embed/extend OpenAI in Azure services. If it's a partnership investment, there may be both money & in-kind components, but the money won't be in the context of fractional ownership. Rather it would be partner development funds of various flavors, which are usually tied to consumption commits as well as GTM targets. Sometimes in reading press releases or third party articles it's difficult to determine exactly what kind of relationship the ISV has with the CSP.
chatmasta 2y ago
Supermicro is currently under DOJ investigation for similar schemes to this. The legality of it probably depends on the accounting, and how revenue is recognized, etc. It certainly looks sketchy. But I’m sure there’s a way to do it legitimately if their accountants and lawyers are careful about it…
B4CKlash 2y ago
There's also another angle. During the call with Lex last week, Dario seemed to imply that future models would run on amazon chips from Annapurna Labs (Amazon's 2015 fabless purchase). Amazon is all about the flywheel + picks and shovels and I, personally, see this as the endgame. Create demand for your hardware to reduce the per unit cost and speed up the dev cycle. Add the AWS interplay and it's a money printing machine.
shawndrost 2y ago
You can find the text of the original OpenAI/MSFT deal here: https://www.lesswrong.com/posts/5jjk4CDnj9tA7ugxr/openai-email-archives-from-musk-v-altman#Subject__MSFT_hosting_deal https://www.lesswrong.com/posts/5jjk4CDnj9tA7ugxr/openai-ema...
DAGdug 2y ago
This assumes they have no constraint when it comes to supply, and therefore no opportunity cost.
paulddraper 2y ago
Correct. Same with Microsoft.
yard2010 2y ago
...isn't it tax fraud with extra steps? Asking seriously.
scosman 2y ago
Also: they need top tier models for their Bedrock business. They are one of only a few providers for Claude 3.5 - it’s not open and anthropic doesn’t let many folks run it. Google has Gemini (and Claude), MSFT has OpenAI. Amazon needs this to stay relevant.
dustingetz 2y ago
i believe they get to book any investment of cloud credits as revenue, here’s a good thread explaining the grift: https://news.ycombinator.com/item?id=39456140 https://news.ycombinator.com/item?id=39456140 basically you’re investing your own money in yourself which mostly nets out but you get to keep the equity (and then all the fool investors FOMO in on fake self dealing valuations)

aiinnyc 2y ago

One hand washes the other.

tyre 2y ago

Yes exactly. This was the brilliance of the original MSFT investment into OpenAI. It was an investment in Azure scaling its AI training infra, but roundabout through a massive customer (exactly what you’d want as a design partner) and getting equity. I’m sure Anthropic negotiated a great deal on their largest cost center, while Amazon gets a huge customer to build out their system with.

whatshisface 2y ago
This explanation makes no sense, I could be AWS' biggest customer if they wanted to pay me for it. Something a little closer could be that the big tech companies wanted to acquire outside LLMs, not quite realizing that spending $1B on training only puts you $1B ahead.
- raverbashing 2y ago
  Yes but Amazon is not making extra money with you being their biggest customer With Anthropic yes
  - whatshisface 2y ago
    Anthropic is getting $4B in investment in a year where their revenue was about $850M. Even if Amazon had bought them outright for that much, they would not be ahead. The fact that everybody keeps repeating the claim that Amazon is "making money" makes this appear like some kind of scam.
    - surgical_fire 2y ago
      It appears to be a scam because it sort of is. AI needs to be propped up because the bug tech cloud providers they depend on need AI to be a thing to justify their valuations. Tech is going through a bit of a slump where all things being hyped a few years ago sort of died down (crypto? VR? Voice assistants? Metaverse?). Nobody gets very hyped about any of those nowadays. I am probably forgetting a couple of hyped things that fizzled out over the years. Case in point, as much as I despise Apple, they are not all-in the AI bandwagon because it does nothing for them.
      - vineyardmike 2y ago
        Go look at earnings reports for big tech companies. AI is definitely driving incremental revenue. Apple is definitely on the AI bandwagon, they just have a different business model and they’re very disciplined. Apple tends not to increase research and investment costs faster than revenue growth. You’ll also notice rumors that they’re lowering their self driving car and VR research goals.
        surgical_fire 2y ago
        > Go look at earnings reports for big tech companies. AI is definitely driving incremental revenue. Yes. Which proves my point.
        vineyardmike 2y ago
        Google Cloud revenue up 35% thanks to AI products [1,4,5]. Azure sales by a similar amount (but only 12% was AI products [2]. AWS is up too [3]. In so glad your point was that it’s not a scam, and there are billions of dollars in real sales occurring at a variety of companies. It’s amazing what publicly traded companies disclose if we only bother to read it. I’m glad we’re all not in the contrarian bubble where we have to hate anything with hype. 1. https://technologymagazine.com/articles/how-ai-surged-google-clouds-revenue-growth https://technologymagazine.com/articles/how-ai-surged-google... 2. https://siliconangle.com/2024/10/30/microsofts-ai-bet-pays-off-azure-revenue-grows-stock-falls-infrastructure-supplier-delays/ https://siliconangle.com/2024/10/30/microsofts-ai-bet-pays-o... 3. https://www.ciodive.com/news/AWS-cloud-revenue-growth-AI-demand-earnings/731781/ https://www.ciodive.com/news/AWS-cloud-revenue-growth-AI-dem... 4. https://www.reuters.com/technology/google-parent-alphabet-beats-quarterly-revenue-estimates-2024-10-29/ https://www.reuters.com/technology/google-parent-alphabet-be... 5. https://fortune.com/2024/10/29/google-q3-earnings-alphabet-sundar-pichai-revenue-profit-youtube/ https://fortune.com/2024/10/29/google-q3-earnings-alphabet-s...
wcunning 2y ago
That’s honestly one of the hardest things in engineering — identifying not just a customer to drive requirements, but a knowledgeable customer who can drive good requirements that work for a broader user base and can drive further expansion. Anthropic seems ideal for that, plus they act as a service/API provider on AWS.
- antupis 2y ago
  Yeah this working with knowledgeable customer is like magic.
dzonga 2y ago
or simply one of the best corporate buyouts that's not subject to regulatory scrutiny. microsoft owns 49% of OpenAI - will get profits till whenever. All without subject to regulatory approval. and they get to improve Azure
- rty32 2y ago
  A caveat -- FTC is currently looking into the deal between Microsoft and OpenAI.
  - salad-tycoon 2y ago
    A lot could change in the future and what’s the worse they could do? A billiokn dollar fine? Bold, do it and ask for forgiveness later.
fny 2y ago
And Amazon can always build their own LLM product down the line. Building out data centers feels like a far more difficult problem.
- diggan 2y ago
  > Building out data centers feels like a far more difficult problem. Is it really? I'm thinking it might be more time-and-money-involved than building a "LLM product" (guess you really meant models?), but in terms of experience, we (humanity) have decades of experience building data centers, while a few years (at most) experience regarding anything LLM.
  - eddyzh 2y ago
    You might be interested in the Nobel prizes this year for (LLM relevant) science starting 70 years ago. 2 years ago was only when it went mainstream in a chat Format. Also, you/average user has been typing with helpt of a (smaller) language model for about 9 years on mobile.
- bittermandel 2y ago
  I'd say building datacenters is a commodity these days. There's countless actors in this field who are thriving.
  - ralgozino 2y ago
    Absolutely, you can even buy a pre built datacenter from companies like Huawei or Schneider and get it shipped, plug power and network and be online.

eitally 2y ago

I am not privy to specific details, but in general there is a difference between investment and partnership. If it's literally an investment, it can either be in cash or in kind, where in kind can be like what MSFT did for OpenAI, essentially giving them unlimited-ish ($10b) Azure credits for training ... but there was quid pro quo where MSFT in turn agreed to embed/extend OpenAI in Azure services. If it's a partnership investment, there may be both money & in-kind components, but the money won't be in the context of fractional ownership. Rather it would be partner development funds of various flavors, which are usually tied to consumption commits as well as GTM targets. Sometimes in reading press releases or third party articles it's difficult to determine exactly what kind of relationship the ISV has with the CSP.

chatmasta 2y ago

Supermicro is currently under DOJ investigation for similar schemes to this. The legality of it probably depends on the accounting, and how revenue is recognized, etc. It certainly looks sketchy. But I’m sure there’s a way to do it legitimately if their accountants and lawyers are careful about it…

B4CKlash 2y ago

There's also another angle. During the call with Lex last week, Dario seemed to imply that future models would run on amazon chips from Annapurna Labs (Amazon's 2015 fabless purchase). Amazon is all about the flywheel + picks and shovels and I, personally, see this as the endgame. Create demand for your hardware to reduce the per unit cost and speed up the dev cycle. Add the AWS interplay and it's a money printing machine.

shawndrost 2y ago

You can find the text of the original OpenAI/MSFT deal here: https://www.lesswrong.com/posts/5jjk4CDnj9tA7ugxr/openai-email-archives-from-musk-v-altman#Subject__MSFT_hosting_deal https://www.lesswrong.com/posts/5jjk4CDnj9tA7ugxr/openai-ema...

DAGdug 2y ago

This assumes they have no constraint when it comes to supply, and therefore no opportunity cost.

paulddraper 2y ago

Correct. Same with Microsoft.

yard2010 2y ago

...isn't it tax fraud with extra steps? Asking seriously.

scosman 2y ago

Also: they need top tier models for their Bedrock business. They are one of only a few providers for Claude 3.5 - it’s not open and anthropic doesn’t let many folks run it. Google has Gemini (and Claude), MSFT has OpenAI. Amazon needs this to stay relevant.

dustingetz 2y ago

i believe they get to book any investment of cloud credits as revenue, here’s a good thread explaining the grift: https://news.ycombinator.com/item?id=39456140 https://news.ycombinator.com/item?id=39456140 basically you’re investing your own money in yourself which mostly nets out but you get to keep the equity (and then all the fool investors FOMO in on fake self dealing valuations)