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I was very bearish on AI to begin with, but recently I started experimenting more with APIs and building my own agents. And wow, I did not realize how heavily subsidized all the subscriptions were: 🧵 1/6

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The only way for the cost of tokens to drop is if the models become orders of magnitude more efficient. This is very likely to happen, the only question being whether the AI bubble pops first. One way to drop the cost of the model is by employing higher reasoning, abstraction, etc.

IBM proved it was possible to beat a grandmaster at chess using a pure brute force approach in the 1990s. Deep Blue had no real concept of strategy. Modern chess programs that apply computation + strategy are much more powerful.

The $200/month Claude subscription I have is okish. Current frontier model capabilities are mediocre at best, but I can find $200/month worth of value here and there, so it's worth it for me. But, via the API though, I can burn $200 worth of tokens with a single prompt. 2/6

You can turn on otel logging and push your claude code usage to Prometheus / Grafana to see your actual CC usage if you are really interested in tracking that usage. It's proved useful to demonstrate to my friends just how subsidized this current set is.

Most of the die-hard AI fans I talk to are using stuff like Cursor, Claude Code, ChatGPT, etc. All of those are heavily-subsidized to the point where those $20/month and $200/month subscriptions they're paying for are letting them burn thousands of dollars worth of tokens. 3/6

I'd guess some of the heavier subscription users are probably burning like $15-30k/month worth of resources. Then you have to consider the fact that the actual cost of API tokens may also be subsidized. These company are getting discount compute from cloud providers looking to expand. 4/6

Do you have recommended reading here? My understanding is that the subs are super subsidised indeed. But the actual API calls (which is what many enterprise customers are paying) don't immediately feel very subsidised to me. Are you saying AWS/GOOG are providing Anthropic with subsidised capacity?

The API token cost is *absolutely* subsidized by investors doing loss lead bets. But the more you squint, the dumber it gets. In talking with one of the largest players earlier this year, they noted that it's nearly impossible to calculate the true cost of serving tokens once subsidies stop.

So, like, yeah, "everyone gets a free supercomputer" is great and all. But it isn't a serious business model. I just don't see how any amount of capability advancement or decrease in operational cost makes generative AI even remotely good value for money. 5/6

No doubt the API is more expensive but $200 is like 20 million tokens at Opus 4.7 rates. What are you trying to do with a single prompt that takes so much?

it’s the Uber model, get everyone dependent on the cheap service as it’s gradually hollowed out and gets more expensive because of the factors it was subsidized to paper over

It’s insane and one day the bottom will fall out, and we will all be stuck either paying through the nose or looking dumb 😆 For fun go talk to the “Mac Mini gives me Opus output” guys to see how bad the brain rot is in the self-hosted model world. I guarantee you won’t go back there. 🤭

I've already had the misfortune of being surrounded with those people. They swear up and down that their shitty open weight model running on their $3000 desktop potato is on par with frontier capabilities

This is our future: “Agentic Engineering” - finely scoped, monitored and reviews with Human-In-Loop, dies a death from token costs “Vibe Coding” - the classic “Build me Twitter” will grow more, but will shift to the shitty “Potato-Model” running 30B with 15k tokens, rotting at 6k tokens wins out

There's an entire industry of model and agent optimization that hasn't been explored yet. Besides the fact that model distillation is packing more capabilities into smaller models (e.g. tiny on-device models bring as good as the largest previous generation), there's routing, text diffusion, caching

e.gme.gm

Yes, post 6 is just as handwavy though. There's real evidence of breakthroughs with Deepseek, Gemini Nano, etc. To claim that there's nothing left to be done in optimization isn't very convincing. The companies who focus on innovating in that area will outcompete the others.

No, lol. Deepseek literally just trained their model by stealing data from Anthropic and OpenAI models (I don't have any moral issue with that, I think it's funny af). But "all the models can just train their models based on other people's models" is not a serious suggestion.