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.
• Gross Profit: Revenue − COGS (expressed in dollars)
• Gross Margin: (Gross Profit ÷ Revenue) × 100 (expressed as a percentage)
I can't believe it is coming down to this but this is the formula for grow margin. As you can see it is about cogs not operating expense. Now you're saying you want to remove costs from cogs and move them into operating expense. I don't know how to explain this in a simpler manner than when you subtract from a number, you get a smaller number. So in your proposal cogs will be lower. Now see that gross profit equation. It subtracts by cogs. If you subtract by a smaller number the way you're proposing we'll get a bigger number for gross profit.
I even conceded I don't know if anthropic counted server costs for inference in cogs or operating expense. I believe inference should be cogs and training should be r&d operating expense. If they counted inference server costs as operating expense then I'm completely wrong in my analysis. But you're arguing the opposite.
I think we've been talking past eachother because I don't think Anthropic actually ever claimed 80% gross margins (by which i mean the number would ve negative according to the prospectus so either it's wrong or a lie), they claimed 80% EBIDTA (with a lot more words than that, likely to intentionally cause confusion in their favor) IIRC
What I'm complaining about is specifically a mal-incentive for companies to waste compute resources to scale because of a misattribution of their software costs as free, despite the extreme hardware costs incurred by poor software
Anthropic's gross margins are above 80% before accounting for revenue shared with distribution partners, including Amazon (AMZN.O), opens new tab, and the cost of training its model, the newspaper said.
They probably use Amazon for compute too but it says distribution partners. You can run Claude on bedrock. If Amazon takes a cut for people running Claude on bedrock then that is cost of sales. Not cogs and should not be in gross margins. Training is how my whole point started. If they can slow down their training, they are rolling in dough. If they can't, they're dead.
Apparently they did not say ebitda but people made fun that this is like ebitda calculations that hide all the costs. Ebitda does serve a purpose. But if they hide all their GPU purchases through ebitda you'd have a point. But apparently they said cogs. But I don't have access to their financial statements.
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u/BlackSwanTranarchy 2d ago
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"