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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

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

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).

It wasn’t even that! It was just an observation by Gordon Moore (after not that many years of production) that transistor density on IC wafers was roughly doubling every 18 months (to that point). People assigned quite a lot of undue significance to that observation, which he never posited as law.

Take the Intel 8008, adjust its cost for inflation, and then figure out how many transistors it "should" have when doubling every 18 or 24 months. There are chips that come close to the transistor count, but they're at least an order of magnitude more expensive.

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?