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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

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

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

Then every AI proponent I talk to about this just come up with some insane napkin math where token costs keep decreasing exponentially forever. It feels as if the entire industry is basically operating on some insane Moore's law hypothesis where everything just becomes free... 6/6

AI is venture capital's last and most desperate attempt to get Moore's Law back after Dennard Scaling effectively killed its performance gains. It's a desperate attempt to undo dark silicon. And that happened 20 years ago so it's past necrophilia into necromancy

Chips are getting faster, but they're not getting cheaper for it. The OG formulation of Moore's Law was cost per integrated component is cut in half every x months (the value of x fluctuated over the years).

I think you might be just a hair too young to viscerally remember the dot com bubble bursting, but this is exactly what the run-up to that felt like, with people saying “hang on, how does pets dot com sell 40lb bags of cat food at invoice price with free shipping and expect to make a profit?”

What’s wild to me is that OpenAI thinks they’re going to churn most of their $20/mo subscriptions into $8/mo subscriptions by the end of 2027. Do businesses usually plan to scale by moving most of their customers to lower-revenue users?

I mean, Sam Altman did say their plan was to make ChatGPT smart enough to find a business model for them, and this does sound like the kind of business model ChatGPT would come up with

Can't it be the inverse, API is insanely overpriced because it's targeted at? Not defending AI companies or LLMs, fuck Sam Altman, I just didn't understand why you concluded that the API price is the fair one, and not the other way around?

Google did find a way to reduce memory usage by 6x. But the only way I see LLMs being affordable is local models that run on your own device.