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What happens when the free trial period of GenAI is over?

I think Ed Zitron is undoubtedly correct that (a) this software is being run at a huge loss and (b) that can’t go on for ever, though I don’t necessarily think that means the ‘bubble will burst’, at least in a straightforward way:

Almost every “AI-powered” startup that uses LLM features is based on some combination of GPT or Claude. These models are built by two companies that are deeply unprofitable (Anthropic is on course to lose $2.7 billion this year), and that have pricing designed to get more customers rather than make any kind of profit. OpenAI, as mentioned, is subsidized by Microsoft — both in the “cloud credits” it received and the preferential pricing Microsoft offers — and its pricing is entirely dependent on Microsoft’s continued support, both as an investor and a services provider, a problem that Anthropic faces with its deals with Amazon and Google.

Based on how unprofitable they are, I hypothesize that if OpenAI or Anthropic charged prices closer to their actual costs, there would be a ten-to-a-hundred-times increase in the price of API calls, though it’s impossible to say how much without the actual numbers. However, let’s consider for a fact that the numbers reported by The Information estimate that OpenAI’s server costs with Microsoft will be $4 billion in 2024 — which, I add, are over two-and-a-half-times cheaper than what Microsoft charges others — and then consider that OpenAI still loses over five billion dollars a year.

OpenAI is more than likely charging only a small percentage of what it likely costs to run its models, and can only continue to do so if it is able to continually raise more venture funding than has ever been raised and continue to receive preferential pricing from Microsoft, a company that recently mentioned that it considers OpenAI a competitor. While I can’t say for certain, I would think it’s reasonable to believe that Anthropic receives similarly-preferential pricing from both Amazon Web Services and Google Cloud.

Assuming that Microsoft gave OpenAI $10 billion of cloud credits, and it spent $4 billion on server costs and, let’s say, $2 billion on training — costs that are both sure to increase with the new o1 and “Orion” models — OpenAI will either need more credits or will have to start paying actual cash to Microsoft sometime in 2025.

https://www.wheresyoured.at/subprimeai/?ref=ed-zitrons-wheres-your-ed-at-newsletter
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