3 ms·

Usefulness aside, I see little evidence AI is making money (profit, not revenue) for any firm whose profit doesn't come from the AI itself or the infrastructure

Usefulness aside, I see little evidence AI is making money (profit, not revenue) for any firm whose profit doesn't come from the AI itself or the infrastructure, including supply chain. I'd love to hear a counterexample. One such example would be of a hypothetical company that does translations for payment, and with AI they now are making more profit because they use AI to do the translation rather than pay a translator. Duolingo is such a company you would expect AI to help a lot. Surely AI could allow it to cut costs substantially. And yet, in the past year its stock is down 70% and in Q1 2026 profit has not seemed to increase compared to Q4 2025. In fact, other than Q3 of last year which had some tax shenanigans, their profit is relatively flat. Not a great look given that AI is highly disruptive to their product. --- AI is actually insidious. Suppose you're in a competitive industry like Costco making 3% (net profit) margin. Suppose the average costco employee makes 60K. Then you come in and think it would be great to have an AI agent lets every employee ask questions of inventory to help customers. Surely if employees could use AI that could somehow make more money for Costco. Hypothetically let's say this ends up costing about the same as the basic subscription in terms of tokens. $20/employee/month Can't be that bad right? $240 ÷ 0.03 = $8,000 (in other words, generate over 10% of their own salary in marginal additional net profit every year). Is Costco really going to generate 8K more per employee? Nope. And yet, firms like Costco who choose AI effectively just lower their own profit margins.

rubyfan 3mo ago
Translator services usually get paid because they offer an accreditation or certification that the humans doing the translation are trained and are not randos / computers. I could imagine these services becoming marginally more efficient but no dramatically improving profits.
rainprincess 3mo ago
I think this is a great point. I want to add context for Duolingo because I think it's confounded by cultural conversation. Duolingo in some Q1 earnings call stated it was going to go AI-native. They were going to switch from contractors to AI. This led to a huge PR crisis, especially on TikTok, where they used to have a big online presence and GenZ influence. I'm not sure if they ever recovered the image they had after that. They tried, and they got pushback from their consumer base. Your Costco example makes a lot of sense to me. Right now at my company we are spending hundreds and thousands per employee, but it's not like everyone has an idea that is meant to be integrated into product. So everyone's just making more vaporware. I do think this is the year the numbers and projections will start coming down to the ground. We can already see this with the fact that the leaders at the frontier labs have stopped talking about AGI and have started talking about token costs and just direct comparisons. It's no longer pie in the sky.
lumost 3mo ago
The risk here is that either AI commoditizes the software "why ask duolingo to ask chatgpt when I can do so directly?" or simply adds cost to an existing service "why does every costco employee now cost 10% more?" So far, there hasn't been a clear win for "software wrapping an existing LLM" - if the AI is good enough, then the users can go directly to the source.
jmalicki 3mo ago
AI has been making a ton for advertisers for decades. Think Facebook ads, Google search ads, etc. That's a different and older kind of AI than chatbots, but it's not fundamentally different, but AI is the engine that makes their ad targeting so effective, and why they're some of the most profitable large companies on the planet.
- amazingamazing 3mo ago
  > but it's not fundamentally different It is. We are talking about LLMs here.
- grey-area 3mo ago
  You’re talking about machine learning, that’s not what all this money has been ploughed into, and not what people mean when they say ‘AI’ today but you’re right that it’s much more clearly effective and profitable than LLMs.
ironSkillet 3mo ago
I'm not an MBA over here, but this math seems wrong. If they are spending $240 in increased costs, then they only have to make about $247 in additional revenue from that spend to preserve a 3% margin. That seems much more reasonable if it increases the probability that customers find the product they are looking for and have a good experience.
- ambicapter 3mo ago
  I agree here. OP is taking a retail company's entire profit margin, which includes a lot of operating costs, and estimating that the AI subscription will have the same margin. The AI subscription is software though, it probably has the operating costs and profit margins of software.
- amazingamazing 3mo ago
  No, because costco has a 3% margin. A cart of stuff at costco costing 247 will yield 240 to various operating costs, and roughly $7 actually to costco. If you have a lemonade stand you might sell a cup for $1, but overall after paying yourself and for the cups, lemons, etc you might only get 3 cents each cup. For costco revenue equals sales and membership.
  - ironSkillet 3mo ago
    I understand that. The AI software is meant to be a productivity enhancer for the employees using it. Other than the licenses, some training etc, there are no operating costs associated with it. Just by using the software, I don't suddenly have to pay more for salaries, retirement plans, etc, which are things that in aggregate produce the 3% margin. Maybe I have to pay more in logistics because I'm moving more product now, but I think the point stands.
    - amazingamazing 3mo ago
      The point is if you are paying for software but not increasing your revenue by your margin you are lowering it even if you are increasing profit in absolute terms. What you are mentioning with salaries is not relevant.
rsalus 3mo ago
I agree with your main observations, but the Costco example is a bit contrived. I expect companies to eventually figure out suitable applications for AI, and I doubt a flat subscription per seat will be one of them. Personally, I feel the main issue is that the tooling + systems needed to deploy AI successfully have only recently started to mature.
keeda 3mo ago
This study finds increased sales and value per customer from GenAI integration at a large Chinese online retailer (all the way back in 2023-24!) The customer Q&A scenario is one of those covered, except the customer talks directly to the LLM rather than an employee with a subscription: https://arxiv.org/abs/2510.12049 https://arxiv.org/abs/2510.12049 > We quantify the short-term impact of Generative Artificial Intelligence (GenAI) on sales performance through a series of large-scale randomized field experiments involving millions of users and products at a leading cross-border online retail platform. Over 2023-2024, the platform integrated GenAI into seven business workflows spanning customer service, consumer-product matching, advertising, and seller services. We find that GenAI adoption increases sales in most workflows, with effects ranging from no detectable impact to 16.3%, depending on GenAI's marginal contribution relative to baseline firm practices. Across the four GenAI applications with positive sales effects, the implied annual incremental value is roughly $5 per consumer−an economically meaningful impact given the retailer's scale and the early stage of GenAI adoption. The gains operate primarily through higher conversion rates rather than larger cart values, consistent with GenAI improving the shopping experience by reducing search, information, communication, and personalization frictions. Importantly, these effects are not associated with worse post-purchase outcomes, as product return rates and customer ratings do not deteriorate. Finally, we document substantial demand-side heterogeneity, with larger gains for less experienced consumers. Our findings provide novel, large-scale causal evidence on how GenAI shapes sales productivity in online retail, highlighting both its immediate value and broader potential. Impact on profitability itself is hard to determine due to caveats listed in the paper (which are important to read!) but offhand I would guess that incemental $5 margin per customer is much more than what their prompts cost.
ifwinterco 3mo ago
The issue is Duolingo is rubbish, what the app does isn’t that hard to replicate and there are already competitors that have a better product. So if AI is real then that‘s the cherry on top: people can now make an alternative to your ineffective messy app even easier. For those kind of SaaS products with no moat LLMs could actually be a problem and definitely aren’t a good thing
watwut 3mo ago
I don't know why you would expect Duolingo profits be helped a lot by AI. Their profits going up and down are more about how much then enshittify for free users - basically tradeoff between long term success and temporary profits. AI does not change that balance. You can enshittify and profit quickly or not enshittify and keep long term engagement. AI announcement annoyed some people, the slop translate courses were, well, slop. That is the extend of the change.

rubyfan 3mo ago

Translator services usually get paid because they offer an accreditation or certification that the humans doing the translation are trained and are not randos / computers. I could imagine these services becoming marginally more efficient but no dramatically improving profits.

rainprincess 3mo ago

I think this is a great point. I want to add context for Duolingo because I think it's confounded by cultural conversation. Duolingo in some Q1 earnings call stated it was going to go AI-native. They were going to switch from contractors to AI. This led to a huge PR crisis, especially on TikTok, where they used to have a big online presence and GenZ influence. I'm not sure if they ever recovered the image they had after that. They tried, and they got pushback from their consumer base. Your Costco example makes a lot of sense to me. Right now at my company we are spending hundreds and thousands per employee, but it's not like everyone has an idea that is meant to be integrated into product. So everyone's just making more vaporware. I do think this is the year the numbers and projections will start coming down to the ground. We can already see this with the fact that the leaders at the frontier labs have stopped talking about AGI and have started talking about token costs and just direct comparisons. It's no longer pie in the sky.

lumost 3mo ago

The risk here is that either AI commoditizes the software "why ask duolingo to ask chatgpt when I can do so directly?" or simply adds cost to an existing service "why does every costco employee now cost 10% more?" So far, there hasn't been a clear win for "software wrapping an existing LLM" - if the AI is good enough, then the users can go directly to the source.

jmalicki 3mo ago

AI has been making a ton for advertisers for decades. Think Facebook ads, Google search ads, etc. That's a different and older kind of AI than chatbots, but it's not fundamentally different, but AI is the engine that makes their ad targeting so effective, and why they're some of the most profitable large companies on the planet.

amazingamazing 3mo ago
> but it's not fundamentally different It is. We are talking about LLMs here.
grey-area 3mo ago
You’re talking about machine learning, that’s not what all this money has been ploughed into, and not what people mean when they say ‘AI’ today but you’re right that it’s much more clearly effective and profitable than LLMs.

ironSkillet 3mo ago

I'm not an MBA over here, but this math seems wrong. If they are spending $240 in increased costs, then they only have to make about $247 in additional revenue from that spend to preserve a 3% margin. That seems much more reasonable if it increases the probability that customers find the product they are looking for and have a good experience.

ambicapter 3mo ago
I agree here. OP is taking a retail company's entire profit margin, which includes a lot of operating costs, and estimating that the AI subscription will have the same margin. The AI subscription is software though, it probably has the operating costs and profit margins of software.
amazingamazing 3mo ago
No, because costco has a 3% margin. A cart of stuff at costco costing 247 will yield 240 to various operating costs, and roughly $7 actually to costco. If you have a lemonade stand you might sell a cup for $1, but overall after paying yourself and for the cups, lemons, etc you might only get 3 cents each cup. For costco revenue equals sales and membership.
- ironSkillet 3mo ago
  I understand that. The AI software is meant to be a productivity enhancer for the employees using it. Other than the licenses, some training etc, there are no operating costs associated with it. Just by using the software, I don't suddenly have to pay more for salaries, retirement plans, etc, which are things that in aggregate produce the 3% margin. Maybe I have to pay more in logistics because I'm moving more product now, but I think the point stands.
  - amazingamazing 3mo ago
    The point is if you are paying for software but not increasing your revenue by your margin you are lowering it even if you are increasing profit in absolute terms. What you are mentioning with salaries is not relevant.

rsalus 3mo ago

I agree with your main observations, but the Costco example is a bit contrived. I expect companies to eventually figure out suitable applications for AI, and I doubt a flat subscription per seat will be one of them. Personally, I feel the main issue is that the tooling + systems needed to deploy AI successfully have only recently started to mature.

keeda 3mo ago

This study finds increased sales and value per customer from GenAI integration at a large Chinese online retailer (all the way back in 2023-24!) The customer Q&A scenario is one of those covered, except the customer talks directly to the LLM rather than an employee with a subscription: https://arxiv.org/abs/2510.12049 https://arxiv.org/abs/2510.12049 > We quantify the short-term impact of Generative Artificial Intelligence (GenAI) on sales performance through a series of large-scale randomized field experiments involving millions of users and products at a leading cross-border online retail platform. Over 2023-2024, the platform integrated GenAI into seven business workflows spanning customer service, consumer-product matching, advertising, and seller services. We find that GenAI adoption increases sales in most workflows, with effects ranging from no detectable impact to 16.3%, depending on GenAI's marginal contribution relative to baseline firm practices. Across the four GenAI applications with positive sales effects, the implied annual incremental value is roughly $5 per consumer−an economically meaningful impact given the retailer's scale and the early stage of GenAI adoption. The gains operate primarily through higher conversion rates rather than larger cart values, consistent with GenAI improving the shopping experience by reducing search, information, communication, and personalization frictions. Importantly, these effects are not associated with worse post-purchase outcomes, as product return rates and customer ratings do not deteriorate. Finally, we document substantial demand-side heterogeneity, with larger gains for less experienced consumers. Our findings provide novel, large-scale causal evidence on how GenAI shapes sales productivity in online retail, highlighting both its immediate value and broader potential. Impact on profitability itself is hard to determine due to caveats listed in the paper (which are important to read!) but offhand I would guess that incemental $5 margin per customer is much more than what their prompts cost.

ifwinterco 3mo ago

The issue is Duolingo is rubbish, what the app does isn’t that hard to replicate and there are already competitors that have a better product. So if AI is real then that‘s the cherry on top: people can now make an alternative to your ineffective messy app even easier. For those kind of SaaS products with no moat LLMs could actually be a problem and definitely aren’t a good thing

watwut 3mo ago

I don't know why you would expect Duolingo profits be helped a lot by AI. Their profits going up and down are more about how much then enshittify for free users - basically tradeoff between long term success and temporary profits. AI does not change that balance. You can enshittify and profit quickly or not enshittify and keep long term engagement. AI announcement annoyed some people, the slop translate courses were, well, slop. That is the extend of the change.