The Exchanges

Q What are some of those variable costs you were talking about?

A So let's take, for the purposes of the audience, separate two different classes of companies, just to make sure that we're not leaving people behind. I talk about, like, the AI foundation companies, so this would be OpenAI, Anthropic, Google with Gemini, These are companies that are very much like the electricity providers. They're selling intelligence as a service. Their pricing models look very much like other infrastructure as a service companies like your AWS computer, Azure, etc. The rest of the world is Consumers of those foundation models in order to adapt these AI capabilities. And so what's happening is say, for example, you're selling a CRM or customer service platform, and you want to use one of these foundation models in order to summarize all of the history that your company has had with a particular account or on a particular Take it so that your salesperson or customer service rep can get up to speed on what the customers dealt with, maybe over multiple reps they've been dealing with over multiple years, multiple product cycles. And so the company is going to get your customers going to click the button to say, Hey, I want to summarize this history. And that's going to have a cost that is going to, you know, an open AI for some amount of processing and the way the AI foundation model companies do it at least traditionally now through their APIs have been on it li…

AI assessment note: “through their APIs have been on it like a per token basis”

Q to Cursor, and Cursor for 20 dollars would give you 400 prompts or 500 prompts. It's like, each of these applications are doing similar things. But their prices are wildly different from each other. Normally in an industry, the prices may be similar to one another, and yet between Bolt, Lovable, Cursor, these are just examples of a class of, of AI products. Why are the prices so wildly different?

A One is a characteristic of a new market. So I think that what you're seeing a lot right now is heavy experimentation and iteration. You're also seeing a lot of copying. So, you know, although you mentioned, right, it's like, hey, I've got probably a 20 dollar per month per user lovable subscription. I can go to ChatGPT and it's also 20 dollars per month. And I can go to Anthropic, you know, and use Claude and it's 20 dollars per month. Or I could go to Bolt or any number of these. So we're seeing folks that are, you know, as a first pass saying, well, Ok, cursor has this, and so windsurf comes behind like, well, we're just going to kind of use what they have so that, you know, it seems to be working well enough for them. But you also see folks who are saying, hey, there's a, there's an opportunity here to maybe rethink what we're, how we're providing value given our use case and, and taking some risks. I think where this is one of the most prominent examples That I've seen is, uh, with OpenAI, um, you know, they were the first out the door with the ChatGBT. Pretty much most people now, when you talk about AI, just think you're talking about ChatGBT. Um, and they came out the gate with a 20 dollar per month seat license. About six, nine months ago now, they introduced their pro tier at 200 dollars a month. This set off a lot of waves, at least in my world, um, because it was a, …

AI assessment note: “One is a characteristic of a new market... heavy experimentation and iteration.”

Q So what exactly are they offering in these higher tiers that people justify paying for?

A Well, through total transparency, I have not been convinced to buy the higher tiers of, of these products. Um, I'm, I'm happy paying, I pay all three of them, the lower tiers. So I definitely have a higher AI bill maybe than the, than the norm. Um, but not quite, uh, to that level. Uh, they're getting access to the most powerful models and I hesitate to even say the model names because they'll probably all be Different next week, but the most powerful models as well as unlimited usage of those, uh, capabilities. Um, and so, you know, all the companies that started with Google released capabilities like deep research where it's kind of like a, uh, it, you think of it like a, a really capable intern that you could say, Hey, go off and do web research on a couple hundred websites to answer, you know, I don't know. I did it the other day for, I was buying a workout, a weighted vest. Um, and so, you know, I, I could go spend, you know, a couple hours on Amazon reading reviews or, you know, shopping around and looking at fitness websites, et cetera, what I need to know.

AI assessment note: “they're getting access to the most powerful models as well as unlimited usage”

Q just pay to be able to use the thing. But you're not limited to what you can use once you've paid. So why, you were saying before that the, there's a higher tier for people to have unlimited use. Why is it that AI models are priced this way, where there's a capped version and an unlimited version? Rather than a here, use it, use it as you see fit.

A There's a whole wealth of different topics within, uh, what you just said. So I think there's, there's a few things going on. So I think one is, um, there's a really interesting set of dynamics competitively when you look at the companies involved and their fundamental business models and what they are Ultimately trying to achieve and also trying to stay alive. So what do I mean by that? Um, you have, you know, Google with, you know, I'm not the first one to say this, probably the best business model ever invented, you know, that just throws off incredible amounts of cash. They could lose money on their AI, like basically indefinitely. They could run the clock out on everyone else if they really wanted to, you know, keep pricing pressure on the market and run those other companies out of business because they can fund that type of innovation. And we've seen them do that with, you know, things like, you know, Waymo, which is finally becoming commercial, but has been in their labs for like 15 years and has, you know, they probably poured untold billions into developing. Um, similarly, we probably see that going on right now with Mark Zuckerberg and Meta, who's poaching all the OpenAI employees with ungodly amounts of pay packages, uh, because, you know, he doesn't necessarily need to win, but he just needs to make sure those other guys don't. Um, and so he's willing to, you know,…

AI assessment note: “all of these companies are incredibly hardware constrained”