4 ms·

The majority of revenue comes from API usage. The majority of usage comes from subscriptions. For any of the numbers to make any sense, subscriptions must be su

The majority of revenue comes from API usage. The majority of usage comes from subscriptions. For any of the numbers to make any sense, subscriptions must be subsidized ergo the majority of usage is subsidized. A single $200 subscription can incur upwards of $10,000 in API equivalent usage (and even more when there are frequent resets). If it were true that Anthropic and OpenAI were profitable on all inference they wouldn’t need to constantly raise so much money. Anthropic regularly announce huge investments in infrastructure but it is all smoke and mirrors, data center build out costs aren’t being paid by OpenAI and Anthropic, they’re financed externally. Google, for example, are backstopping tens of billions of datacenter build outs that are being financed based on commitments but not investment from Anthropic. You are underestimating the insanity of subscription subsidization. Being profitable on API inference is meaningless when it is such a small proportion of usage and is only going to fall off a cliff as cheap open weight models become more capable. https://hraness.com/writing/my-girlfriend-asked-me-why-i-have https://hraness.com/writing/my-girlfriend-asked-me-why-i-hav... The absolute majority of tokens are being subsidized and as soon as the subsidies end usage will fall off a cliff, rendering all the data center buildout a terrible waste of money.

delecti 13d ago
> The majority of usage comes from subscriptions Do we know that? As I understand it, enterprise customers pay more. Do we know the usage breakdown between monthly subscribers vs enterprise accounts? I agree that it's inevitable that subsidized subscriptions are unlikely to last forever, but that's not the only assumption in your argument. Edit: I think "enterprise customers pay more" was poorly phrased. I mean that enterprise customers are charged per token, presumably with a profit margin, and thus are not subsidized. While personal accounts are (thought to be) highly subsidized if you consistently max out the quotas. We also don't know what proportion of personal accounts do that though, which is another big question mark.
rovr138 13d ago
I think you're also missing a quirk and that is, is everyone on a $200 plan using $10,000 worth of equivalent API spend? I know people that have the most expensive plan on all the platforms... because The other side to that is, what is 'cost'? Is cost just inference or are expenses also being taken into account? Because the expenses of these companies are huge to build the models.
nl 13d ago
> The majority of usage comes from subscriptions. This is untrue. You are way underestimating enterprise usage here. You can't get the $200 subscription on Teams plans at all, and Enterprise plans don't have any subsidized plans. Anthropic has 80% margins on inference: https://archive.is/BtEeN#selection-1575.0-1575.75 https://archive.is/BtEeN#selection-1575.0-1575.75
- reticulates 13d ago
  The numbers in the article are forecasts but let’s take them as real. That’s $10bn of revenue, the majority from enterprise customers, let’s say 75% from enterprise API usage: $7.5 billion. If the margin on inference is 80% that means of the $7.5bn in enterprise revenue they’re spending $1.5bn on compute. Yet we know that they actually spend over $5bn per month on compute, which includes the $1.25bn per month to SpaceX. If $7.5bn is their enterprise revenue and it costs just $1.5bn to generate, that leaves $3.5bn in compute costs to account for. Dario previously said that training costs less than inference so training can’t explain it. If subscriptions aren’t the majority of usage and aren’t subsidized, where is the money going? Anthropic don’t spend money on data centre build out so that can’t be it either.
  - nl 12d ago
    > If the margin on inference is 80% that means of the $7.5bn in enterprise revenue they’re spending $1.5bn on compute. I don't think you can reverse this out like this because the 80% rate is before payments to "distribution partners, including Amazon". I think that payment includes the hosting cost for that those model but it's unclear. > Dario previously said that training costs less than inference Do you have a source for that? Are you sure you aren't conflating the statements Dario has made that training costs less than they make on inference (over the life cycle of a model)?
    - reticulates 12d ago
      > I don't think you can reverse this out like this because the 80% rate is before payments to "distribution partners, including Amazon". I think that payment includes the hosting cost for that those model but it's unclear. The "hosting cost" is paid for by Anthropic and is the largest cost. The money Anthropic pay to Amazon for delivering Anthropic models via Bedrock is separate, independent of compute costs, best thought of as commission. The forecasted / guessed / estimated 80% number is based what customers pay per token minus the projected compute costs, i.e: the people who believe that Anthropic has 80% margins on tokens believe that Anthropic spend $0.20 on inference compute for every $1 of per-token billed-via-the-api revenue. We know that there are hundreds of thousands of fixed-price subscriptions being used to their absolute maximum, with many people bragging about how many subscriptions they run in parallel. These tokens are not included in the 80% margins, they are acknowledged to be "subsidized". People like @theo on Twitter post almost daily about how much they're milking Anthropic and OpenAI with leaderboards. Both Anthropic and OpenAI (more so OpenAI) do "resets" where they increase the limits available to people on their fixed price plans. We know that there are people paying $1,000 per month for multiple subscriptions to generate tokens that would cost $50,000 via the API. Even if Anthropic's margins are 80% on compute for per-token billing, that's still $10,000 of cost to Anthropic generating just $1,000 in revenue. Multiply that by tens of thousands or maybe even hundreds of thousands of subscriptions. Anthropic and OpenAI have raised over $100 billion each and continue to raise. If they're making 80% or even 50% margins on $10 billion in revenue per month they would not need to raise, they would be shouting for the roof tops about how profitable they are, they wouldn't be delaying their IPOs, yet they're only profitable by non-GAAP metrics like WeWork's classic "Community-adjusted EBITDA" or in this case "per-token-adjusted EBITDA" or whatever they will call it in their IPOs. Yes, they're selling tokens via the API for more than they cost, they are profitable on per-token billed inference, it has positive margins, but those profits are obliterated when you account for all the inference they're paying for out of pocket on fixed price subscriptions, upon which they keep increasing limits because they desperately need to show growth further harming their profitability (consuming all of the money they make from their API). If Anthropic and OpenAI needed to be profitable tomorrow, they could be, they could kill off all their fixed price subscription plans and charge only for usage via the API, they'd print money, but they'd lose mindshare because nobody except for enterprises can afford to pay the true cost, all the regular people would switch to cost effective good-enough models, and then within months, the enterprises would start to switch too because no longer would their employees be claude-pilled. Anthropic and OpenAI cannot turn off subsidization, thus, their margins on per-token API billing are not important in any discussion about their long term financial wellbeing. Just look at the large scale customers like Harvey (~15 trillion tokens per month, ~$50m+ in spend) who are, sensibly, investing in building their own specialized models that are cheap to run so they can cut their spend by 90%. That's profitable revenue for Anthropic / OpenAI today, but completely gone soon. > Do you have a source for that? https://www.youtube.com/watch?v=7xij6SoCClI https://www.youtube.com/watch?v=7xij6SoCClI "This week, Noah Smith and Erik Torenberg are joined by Dario Amodei, CEO and Co-founder of Anthropic. Dario talks about the economics of AI development, the comparative advantage of AI companies like Anthropic, AI safety, and his stance on California's SB 1047 bill. They also discuss the impacts of AI on global power dynamics, competition between the US and China, and inequality in an AI-powered world." At around 12 minutes in: "I think actually even if such a model is released one thing you know that's a this analogy to to open- Source software is that these big models they're actually very expensive to run on inference the majority of the cost is is inference not necessarily the training of the model so if you have only you know I don't know 10 20% 30% better way to do inference that can kind of negate the effect so the economics are kind of strange yes there's this giant fixed cost that you have to amortise but then there's also the per unit cost of inference and small differences in that can actually again assuming the thing is deployed widely enough make a very big difference so I don't know quite how that's going to play out" The scales have changed since then with inference costs falling and more being spent on training but the fundamentals are the same. Inference is expensive, in part, because peak usage dictates capacity whereas capacity can dictate training. Anthropic must pay billions of dollars per month to be able to handle peak inference, hence their efforts to try and shape usage by offering discounts / flexible limits at different times of the day. They can train when capacity permits.

delecti 13d ago

> The majority of usage comes from subscriptions Do we know that? As I understand it, enterprise customers pay more. Do we know the usage breakdown between monthly subscribers vs enterprise accounts? I agree that it's inevitable that subsidized subscriptions are unlikely to last forever, but that's not the only assumption in your argument. Edit: I think "enterprise customers pay more" was poorly phrased. I mean that enterprise customers are charged per token, presumably with a profit margin, and thus are not subsidized. While personal accounts are (thought to be) highly subsidized if you consistently max out the quotas. We also don't know what proportion of personal accounts do that though, which is another big question mark.

rovr138 13d ago

I think you're also missing a quirk and that is, is everyone on a $200 plan using $10,000 worth of equivalent API spend? I know people that have the most expensive plan on all the platforms... because The other side to that is, what is 'cost'? Is cost just inference or are expenses also being taken into account? Because the expenses of these companies are huge to build the models.

nl 13d ago

> The majority of usage comes from subscriptions. This is untrue. You are way underestimating enterprise usage here. You can't get the $200 subscription on Teams plans at all, and Enterprise plans don't have any subsidized plans. Anthropic has 80% margins on inference: https://archive.is/BtEeN#selection-1575.0-1575.75 https://archive.is/BtEeN#selection-1575.0-1575.75

reticulates 13d ago
The numbers in the article are forecasts but let’s take them as real. That’s $10bn of revenue, the majority from enterprise customers, let’s say 75% from enterprise API usage: $7.5 billion. If the margin on inference is 80% that means of the $7.5bn in enterprise revenue they’re spending $1.5bn on compute. Yet we know that they actually spend over $5bn per month on compute, which includes the $1.25bn per month to SpaceX. If $7.5bn is their enterprise revenue and it costs just $1.5bn to generate, that leaves $3.5bn in compute costs to account for. Dario previously said that training costs less than inference so training can’t explain it. If subscriptions aren’t the majority of usage and aren’t subsidized, where is the money going? Anthropic don’t spend money on data centre build out so that can’t be it either.
- nl 12d ago
  > If the margin on inference is 80% that means of the $7.5bn in enterprise revenue they’re spending $1.5bn on compute. I don't think you can reverse this out like this because the 80% rate is before payments to "distribution partners, including Amazon". I think that payment includes the hosting cost for that those model but it's unclear. > Dario previously said that training costs less than inference Do you have a source for that? Are you sure you aren't conflating the statements Dario has made that training costs less than they make on inference (over the life cycle of a model)?
  - reticulates 12d ago
    > I don't think you can reverse this out like this because the 80% rate is before payments to "distribution partners, including Amazon". I think that payment includes the hosting cost for that those model but it's unclear. The "hosting cost" is paid for by Anthropic and is the largest cost. The money Anthropic pay to Amazon for delivering Anthropic models via Bedrock is separate, independent of compute costs, best thought of as commission. The forecasted / guessed / estimated 80% number is based what customers pay per token minus the projected compute costs, i.e: the people who believe that Anthropic has 80% margins on tokens believe that Anthropic spend $0.20 on inference compute for every $1 of per-token billed-via-the-api revenue. We know that there are hundreds of thousands of fixed-price subscriptions being used to their absolute maximum, with many people bragging about how many subscriptions they run in parallel. These tokens are not included in the 80% margins, they are acknowledged to be "subsidized". People like @theo on Twitter post almost daily about how much they're milking Anthropic and OpenAI with leaderboards. Both Anthropic and OpenAI (more so OpenAI) do "resets" where they increase the limits available to people on their fixed price plans. We know that there are people paying $1,000 per month for multiple subscriptions to generate tokens that would cost $50,000 via the API. Even if Anthropic's margins are 80% on compute for per-token billing, that's still $10,000 of cost to Anthropic generating just $1,000 in revenue. Multiply that by tens of thousands or maybe even hundreds of thousands of subscriptions. Anthropic and OpenAI have raised over $100 billion each and continue to raise. If they're making 80% or even 50% margins on $10 billion in revenue per month they would not need to raise, they would be shouting for the roof tops about how profitable they are, they wouldn't be delaying their IPOs, yet they're only profitable by non-GAAP metrics like WeWork's classic "Community-adjusted EBITDA" or in this case "per-token-adjusted EBITDA" or whatever they will call it in their IPOs. Yes, they're selling tokens via the API for more than they cost, they are profitable on per-token billed inference, it has positive margins, but those profits are obliterated when you account for all the inference they're paying for out of pocket on fixed price subscriptions, upon which they keep increasing limits because they desperately need to show growth further harming their profitability (consuming all of the money they make from their API). If Anthropic and OpenAI needed to be profitable tomorrow, they could be, they could kill off all their fixed price subscription plans and charge only for usage via the API, they'd print money, but they'd lose mindshare because nobody except for enterprises can afford to pay the true cost, all the regular people would switch to cost effective good-enough models, and then within months, the enterprises would start to switch too because no longer would their employees be claude-pilled. Anthropic and OpenAI cannot turn off subsidization, thus, their margins on per-token API billing are not important in any discussion about their long term financial wellbeing. Just look at the large scale customers like Harvey (~15 trillion tokens per month, ~$50m+ in spend) who are, sensibly, investing in building their own specialized models that are cheap to run so they can cut their spend by 90%. That's profitable revenue for Anthropic / OpenAI today, but completely gone soon. > Do you have a source for that? https://www.youtube.com/watch?v=7xij6SoCClI https://www.youtube.com/watch?v=7xij6SoCClI "This week, Noah Smith and Erik Torenberg are joined by Dario Amodei, CEO and Co-founder of Anthropic. Dario talks about the economics of AI development, the comparative advantage of AI companies like Anthropic, AI safety, and his stance on California's SB 1047 bill. They also discuss the impacts of AI on global power dynamics, competition between the US and China, and inequality in an AI-powered world." At around 12 minutes in: "I think actually even if such a model is released one thing you know that's a this analogy to to open- Source software is that these big models they're actually very expensive to run on inference the majority of the cost is is inference not necessarily the training of the model so if you have only you know I don't know 10 20% 30% better way to do inference that can kind of negate the effect so the economics are kind of strange yes there's this giant fixed cost that you have to amortise but then there's also the per unit cost of inference and small differences in that can actually again assuming the thing is deployed widely enough make a very big difference so I don't know quite how that's going to play out" The scales have changed since then with inference costs falling and more being spent on training but the fundamentals are the same. Inference is expensive, in part, because peak usage dictates capacity whereas capacity can dictate training. Anthropic must pay billions of dollars per month to be able to handle peak inference, hence their efforts to try and shape usage by offering discounts / flexible limits at different times of the day. They can train when capacity permits.