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> This price is quite unrelated to what the service costs to run. Well. It's noteworthy when the price is lower than the cost. It's not that rare. But it is
by SideburnsOfDoom 1y ago
> This price is quite unrelated to what the service costs to run.
Well. It's noteworthy when the price is lower than the cost.
It's not that rare. But it is noteworthy, as it's not sustainable.
- hermitcrab 1y agoThe optimal price is the optimal price, regardless of what the service costs to run. But, yes, if the cost to run the service is X and the optimal price is <X, you have a problem.
- falcor84 1y agoThe joke used to go "We lose money on every sale, but we make it up in volume”, but funnily enough, this financial logic adds up when you make it up with investor money.
- skeezyboy 1y ago>The optimal price is the optimal price, regardless of what the service costs to run. such insight
- shalmanese 1y agoNo it’s not. Assume there is demand for 5000 units at $1 and 2000 units at $2. If it cost $0 to produce, then the profit is $5000/$4000 so you should price at $1. If it cost 90c to produce, then the profit is $500/$2200 so you should price at $2.
- hermitcrab 1y agoI was talking about software (the OP example), where there is a big fixed cost and (generally) a very low per unit cost. But I probably should have made that clearer. Things do indeed change when you have a significant per unit cost (e.g. manufactured goods).
- dotancohen 1y agoThe per unit cost here is electricity. Those GPUs suck down enough during inference that it is not negligible.
- hermitcrab 1y agoDepends on the type of software. Some software have significant support costs.
- SideburnsOfDoom 1y agoAWS or Azure do charge per-usage, but not in line with usage of electricity. They're well above that.
- shalmanese 1y agoExcept that AI companies have different unit economics from SaaS businesses, requiring a rethinking of fundamentals, as laid out in this a16z post: https://a16z.com/the-new-business-of-ai-and-how-its-different-from-traditional-software/ https://a16z.com/the-new-business-of-ai-and-how-its-differen...
- 4gotunameagain 1y agoIs it that noteworthy ? That has been the entire silicon valley playbook for the past.. decade ? Grow at all cost with VC money, grab the market by offering unsustainably cheap prices, and when you have a monopoly, offer a slightly better or slightly worse version of the previous service (but hey, with an app that runs react!), at a slightly higher or same as before price (turns out profitability is important!), with much much worse working conditions for everyone involved (VC needs their money back, has to come from somewhere!) Then look around confused when there is insane wealth inequality and social unrest.
- skeezyboy 1y agomoney well spent if you arks me