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No 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 $
by shalmanese 1y ago
No 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...