3 ms·
The 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,
by hermitcrab 1y ago
The 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...