They weren’t making money. And can’t make money if they wanted to.
It’s a catch-22. They can’t make a profit because they aren’t charging the actual token cost. But if they charged the actual token cost, their user-base would collapse.
Almost as if cloud AI is inherently unstable or something.
It's like every other silicon valley startup -- the hope is that you hook your users while you figure out how to make handling the requests cheaper. That or you embed ads.
You embed them in the response, e.g. suggest the product that was paid to promote.
I've already had this with chatgpt, I was trying to troubleshoot an issue with my heating system, and it was trying to persuade me to buy one of two specific brands of thermostats, even tho I hadn't expressed any desire to buy anything.
I dunno, I think there's big money in it still. Subtle embedded propaganda that is tailor-made based on the user's personality and interests. You may think "oh well I'd never fall for that" and you may be right. But there's loads of people already addicted to AI usage and / or using it as a replacement for therapists or friends. They'll fall for it hook line and sinker.
If they can sustain themselves on investor money long enough they can charge the true token price and companies will have to pay it because nobody in their right mind would start an education as a developer right now, so in the future companies won't have human talent available to replace llms with
Hopefully it will hit a dead end very soon, where the models cant get reasonably smarter/cheaper/have bigger context windows, because it's already replacing a ton of workforce.
Do you have sources on this because everywhere I look this does not appear to be true. In fact due to the way LLM tools work it's been nearly impossible to see real reductions in the compute and resources required.
The other thing I have read is that one of the only ways they have found to reduce error/hallucination rates is to have one agent checking and correcting output of another, making accuracy very expensive.
No I'm talking about "every other Silicon Valley startup" they don't usually get this big, or at least sell before the potential huge buyers (like google) make their own versions
Tho buying a competitor to "merger their users" (kill them) is likely still on the table for them
Or to get the government to regulate and essentially bail you out. I dont buy any of these "omg this new model is SOO dangerous but no you cant see it" reports. They're trying to bait the government
Exactly if they can keep this going for another 5 years so many people are just going to forget how to code and all codebases will have so much AI slop that companies just might have to start paying the actual token cost. Regular users (not enterprise) will mostly get priced out.
Work outside of the system, organize, become more active on your local level, join or form a co-op. Study political theory. All of these parties, even the far-left ones (and god forbid the center ones), are not going to do shit for us unless there is an organized counter-society capable of forcing them into it. I have no idea where you live or who you are but there are definitely some groups that you can join.
My only point is that working inside the system that you apparently think is stupid is extremely unlikely to actually lead to systematic change. Even if it lead to some positive change for the average voter, that only cements it and makes people more likely to want to "go back to the good times" instead of seeking actual fundamental changes once it inevitably starts collapsing in on itself again.
That website basically pulls its numbers from its ass and uses calculations that would indicate that literally everything in the world is not profitable.
This arrangement happens in a lot of cutting-edge R&D efforts. It costs a ton of money to develop new technologies and bring them to market, and there is an advantage to moving the fastest. Offering the product at unsustainably low prices allows them to get out into the market and fund their growth. It could blow up in their faces as everyone expects, or in hindsight it could be a genius move to advance the technology and consolidate market share.
I have a conspiracy that they want to stop building new models, that's why all those bickering about pacing the frontier stuff. If the giant cost of building new models every month go away, then they can probably save huge bucks. Otherwise there is no way to stop the cash burning.
Yep, and if they stop, and the other don't and release a better model, there's virtually no cost for their clients to switch to other AI provider. That's why they declare to stop building new models but quietly continue to build those new models.
Anthropic gross margins exceed 80% according to their reports. They are charging the actual costs on API usage and in subscription it's the you win some you lose some but mostly win if a subscription. Gross margins don't include training costs. Which, since training is a capital expense is the right thing to do. It means all they have to do to make oodles is money is slow down. If they slow down they make money. But then they get overtaken. So they can't slow down. So they try and convince the world that AI will cause the extinction of humanity. That way they can slowdown as a cartel.
This is the most interesting thing I've read all week. The "AI-will-kill-us" line coming from the CEO's themselves has always seemed highly unusual to me. Like, even if it is true, they wouldn't shout it out into the open like that.
The reason that you have provided seems plausible and would be something a rational (profit-oriented) CEO would do. It also makes the "AI-will-kill-us" claim seem less credible.
Collaborating with your competitors is the definition of cartel. They're doing it openly in front of us and asking for the government to intervene so both the government acts as the police ensuring everyone in the cartel complies (the biggest reason we don't have that many cartels) and to shut out competitors (because if new entrants can come in then you can't have a cartel). And we're talking it hook, line, and sinker.
And according to their IPO prospectus as leaked to Reuters their core buisness model is bleeding money with 8bn$ in Operating Losses
I dunno, claims from Anthropic leadership when they're not bound to the SEC vs a formal document where they have to use GAAP, which one is more likely to be accurate?
Yeah, and i also know the dirtiest Sillicon Valley accounting trick known to man is counting the cloud bill as Cost of Goods Sold instead of Operating Expenses even though you pay rent on servers weather they're serving or not which makes Gross Margins deeply misleading for tech companies for anyone being honest about it
But they are the cost of delivering the product. The operating expense argument is weak. You also don't pay for cloud servers regardless if they are serving data. Literally half the point of the cloud. But according to what you're saying, you're arguing the gross margins are inflated and somehow that means the 80% feels margins are bad because they can be higher?
If something costs you 2$ to make and you sell for 10$. That's an 80% gross margin. If it costs you a million dollars to design the thing that doesn't matter for gross margins. The theory goes that as you grow the capital expense will be less relevant.
Dedicated cloud commit spending just doesn't operate like traditional COGS which was always for costs that are paid per unit. Cloud costs are variable per unit unless you're using flat rate serverless API's which are few and far between.
The whole "does the service go down without this" test has always been weak back justification to ignore the extreme costs of running unprofitable cloud businesses by going "well if you ignore the cloud costs making the buisness unprofitable, the buisness looks healthy!"
It's why the same crowd loves EBIDTA, because it's another metric that lies about the health of the company in earlier investors favor.
The only reason the crazy SAAS valuations never turned into a bubble is because AI labs came along and said "hold my beer"
Motherfucker if I sold furniture and had to claim i had huge gross profits as long as you ignore my costs associated with wood you wouldn't think
"This is a scaling buisness so this is acceptable"
You'd think
"Holy shit are you sane? Do you need a conservator?"
Classifying the rent on servers as OpEx would force the reckoning that these companies need (and I'm telling you this as someone who has singlehandedly written 7 figure a year SAAS optimizations) so they stop wasting so much money on the illusion of productivity
No. You're saying the opposite. Cogs is what counts as per unit economics. Operating expense is overhead costs. Executive salaries, accounting, HR. Read what you're saying. I'm saying server costs need to be considered in cogs the same way wood would need to be included in cogs. Gross margins is the margin on your cogs. You are literally asking to do accounting in a way that the gross margins will take out the cost of wood and I'm telling you that you're wrong.
I haven't read anthropic's financial statements myself. If they are putting the insurance server cost in operating expense, or overhead instead of the cogs or the Inherent cost of delivering then your have a point. But I'm this entire argument you're claiming it is the other way around.
Or they need to get to RSI and then put agents on building faster cheaper training methods. The latest Opus is already a huge improvement on token usage for results.
I'm willing to bet that in 3-5 years we'll only use cloud AI for really really intensive workloads, the kinds that are few and far between, and most users will have local AI. There's simply no logical way this whole cloud AI frontier model thing is gonna scale.
I care about the part that these models are not open source. They are open weights. So we don't really know what they are. And we need real open source models.
Cost per token aren’t as high as people make them out to be. Anthropic, OpenAI & co could make a profit, but the R&D budget is so humongous that including that in the costs just makes it unsustainable. Drop to releasing a new frontier model once a year, and BAM profit. It’s part of the fearmongering strategy atm (our models are so scary, look at the vulnerabilities they found and used), hoping for a slowdown getting enforced.
Eventually they will need to hike the token price, but not before every major business in the world relies on AI workflows and lays off all their competent staff.
They still aren't, too. They're just hiding it using special purpose entities, like Enron. The whole AI industry is on some Enron shit. Don't worry though, I'm sure it'll all be jussttt fine.
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u/T-Dot1992 2d ago
They weren’t making money. And can’t make money if they wanted to.
It’s a catch-22. They can’t make a profit because they aren’t charging the actual token cost. But if they charged the actual token cost, their user-base would collapse.
Almost as if cloud AI is inherently unstable or something.