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Value capture pricing is a fantasy often spouted by salesmen, the current era AI systems have limited differentiation, so the final cost will trend towards the

Value capture pricing is a fantasy often spouted by salesmen, the current era AI systems have limited differentiation, so the final cost will trend towards the cost to run the system. So far I have not been convinced that any particular platform is more than 3 months ahead of the competition.

bryanlarsen 1y ago
OpenAI claims their $200/month plan is not profitable. So this is cost level pricing, not value capture level pricing.
- margalabargala 1y ago
  Not profitable against the cost to train and run the model plus R&D salaries, or just against the cost to run the model?
  - philistine 1y ago
    While interesting as a matter of discourse, for any serious consideration you must consider the R&D costs when pricing a model. You have to pay for it somehow.
    - bippihippi1 1y ago
      how long you amortize the R&D prices over is important too. Do significant discoveries remain relevant for long enough to have enough time to spread the cost out? I'd bet in the current ML market advamces are happening fast enough that they aren't factoring the R&D cost into pricing rn. In fact getting user's to use it is probably giving them a lot of value. Think of apl the data.
    - margalabargala 1y ago
      There are multiple pathways here. Company 1 gets a bucket of investment, makes a model, goes belly up. Company 2 buys Company 1's model in a fire sale. Company 3 uses some open source model that's basically as good as any other and just makes the prettiest wrapper. Company 4 resells access to other company's models at a discount, similar to companies reselling cellular service.
- panarky 1y ago
  Not profitable given their loss-leader rate limits. Platforms want Planet Fitness type subscriptions, recurring revenue streams where most users rarely use the product. That works fine at the $20/month price point but it won't work at $200+ per month because the instant I stop using an expensive plan, I cancel. And if I want to use $1000 worth of the expensive plan I get stopped by rate limits. Maybe the ultra-level would generate more revenue with bigger market share (but lower margin) with a pay-per-token plan.
  - ziofill 1y ago
    I don’t know how, but we’re in this weird regime where companies are happy to offer “value” at the cost of needing so much compute that a 200+$/mo subscription still won’t make it profitable. What the hell? A few years ago they would have throttled the compute or put more resources on making systems more efficient. A 200$/month unprofitable subscription business was a non-starter.
    - ethbr1 1y ago
      > A 200$/month unprofitable subscription business was a non-starter. Did we live through the same recent ZIRP period from 2009-2022? WeWork? MoviePass?
  - tonyhart7 1y ago
    as antrophic ceo say the cashcow is on enterprise offering
- qingcharles 1y ago
  We are currently living in blessed times like the dotcom boom in 1999 where they are handing out free cars if you agree to have a sticker on the side. This tech is being wildly subsidized to try and capture customers, but for average Joe there is no difference from one product to the next, except branding.
  - tonyhart7 1y ago
    "average Joe there is no difference from one product to the next" Yeah that's why OpenAI build an data center imo, the moat is on hardware software ??? even small chinnese firm would able to copy that, but 2 million gpu ???? its hard to copy that
    - briansm 1y ago
      The AI hardware requirements are currently insane; the models are doing with Megawatts of power and warehouses full of hardware what an average Joe does in 20 Watts and a 'bowl of noodles'.
      - KineticLensman 1y ago
        They handle many more requests per second than an average Joe
        otabdeveloper4 1y ago
        Not really. They have large contexts and lack of proper caching for "reasons".
    - otabdeveloper4 1y ago
      Skill issue. You can easily get x10 optimizations with some obvious changes. You can run a small 100 person enterprise on a single 24 gb GPU right now. (And this is before economies of scale have started optimizing hardware.) OpenAI needs the keep the illusion of an anthropomorphic AGI chatbot going to keep the invenstments flowing. This is expensive and stupid. If you just want to solve the actual typical business problems ("check this picture for offensive content" and similar stuff) you don't need all that smoke and mirrors.
- disgruntledphd2 1y ago
  Google have a much, much, much better cost basis for this stuff though, as they have their own chips.

bryanlarsen 1y ago

OpenAI claims their $200/month plan is not profitable. So this is cost level pricing, not value capture level pricing.

margalabargala 1y ago
Not profitable against the cost to train and run the model plus R&D salaries, or just against the cost to run the model?
- philistine 1y ago
  While interesting as a matter of discourse, for any serious consideration you must consider the R&D costs when pricing a model. You have to pay for it somehow.
  - bippihippi1 1y ago
    how long you amortize the R&D prices over is important too. Do significant discoveries remain relevant for long enough to have enough time to spread the cost out? I'd bet in the current ML market advamces are happening fast enough that they aren't factoring the R&D cost into pricing rn. In fact getting user's to use it is probably giving them a lot of value. Think of apl the data.
  - margalabargala 1y ago
    There are multiple pathways here. Company 1 gets a bucket of investment, makes a model, goes belly up. Company 2 buys Company 1's model in a fire sale. Company 3 uses some open source model that's basically as good as any other and just makes the prettiest wrapper. Company 4 resells access to other company's models at a discount, similar to companies reselling cellular service.
panarky 1y ago
Not profitable given their loss-leader rate limits. Platforms want Planet Fitness type subscriptions, recurring revenue streams where most users rarely use the product. That works fine at the $20/month price point but it won't work at $200+ per month because the instant I stop using an expensive plan, I cancel. And if I want to use $1000 worth of the expensive plan I get stopped by rate limits. Maybe the ultra-level would generate more revenue with bigger market share (but lower margin) with a pay-per-token plan.
- ziofill 1y ago
  I don’t know how, but we’re in this weird regime where companies are happy to offer “value” at the cost of needing so much compute that a 200+$/mo subscription still won’t make it profitable. What the hell? A few years ago they would have throttled the compute or put more resources on making systems more efficient. A 200$/month unprofitable subscription business was a non-starter.
  - ethbr1 1y ago
    > A 200$/month unprofitable subscription business was a non-starter. Did we live through the same recent ZIRP period from 2009-2022? WeWork? MoviePass?
- tonyhart7 1y ago
  as antrophic ceo say the cashcow is on enterprise offering
qingcharles 1y ago
We are currently living in blessed times like the dotcom boom in 1999 where they are handing out free cars if you agree to have a sticker on the side. This tech is being wildly subsidized to try and capture customers, but for average Joe there is no difference from one product to the next, except branding.
- tonyhart7 1y ago
  "average Joe there is no difference from one product to the next" Yeah that's why OpenAI build an data center imo, the moat is on hardware software ??? even small chinnese firm would able to copy that, but 2 million gpu ???? its hard to copy that
  - briansm 1y ago
    The AI hardware requirements are currently insane; the models are doing with Megawatts of power and warehouses full of hardware what an average Joe does in 20 Watts and a 'bowl of noodles'.
    - KineticLensman 1y ago
      They handle many more requests per second than an average Joe
      - otabdeveloper4 1y ago
        Not really. They have large contexts and lack of proper caching for "reasons".
  - otabdeveloper4 1y ago
    Skill issue. You can easily get x10 optimizations with some obvious changes. You can run a small 100 person enterprise on a single 24 gb GPU right now. (And this is before economies of scale have started optimizing hardware.) OpenAI needs the keep the illusion of an anthropomorphic AGI chatbot going to keep the invenstments flowing. This is expensive and stupid. If you just want to solve the actual typical business problems ("check this picture for offensive content" and similar stuff) you don't need all that smoke and mirrors.
disgruntledphd2 1y ago
Google have a much, much, much better cost basis for this stuff though, as they have their own chips.