Must-read from Ed Zitron, 4/28: AI's Economics Don't Make Sense (It's like if Uber charged users $20/mo for 100 rides)

[highplainsdem]

This is a great read, and not paywalled.

https://www.wheresyoured.at/ais-economics-dont-make-sense/

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AI startups and hyperscalers assumed that they’d be able to get enough people through the door with subsidized, loss-making products to get them hooked on services badly enough that they’d refuse to change once businesses jacked up the prices. They also assumed, I imagine, that the cost of tokens would come down over time, versus what actually happened — while prices for some models might have come down, newer “reasoning” models burn way more tokens, which means the cost of inference has, somehow, gotten higher over time.

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Generative AI subscriptions are like if Uber charged users $20 a month for 100 rides of any distance under 100 miles, and if gas was $150 a gallon, and Uber paid for the gas because somebody insisted that oil would one day be too cheap to meter.

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For the most part, everybody you’ve read gooning over the many possibilities of generative AI has experienced it without having to pay the true costs. Every Twitter psychopath writing endless screeds about their entire engineering team hammering away at Claude Code has been doing so using a $125-a-month-per-head Teams subscription with similar usage limits to Anthropic’s $100-a-month consumer subscription. Every LinkedIn gargoyle insisting that they’d “done hours of work in minutes” using some sort of Perplexity product has done so by paying, at the very most, $200 a month for Perplexity’s Max subscription.

In reality, that 10-person, $1250-a-month Teams subscription likely burns anywhere from $5000 to $10,000 a month in API calls, if not more. Anthropic Head of Growth Amol Avasare said last week that its Max subscriptions were built for heavy chat usage rather than whatever people are doing with Claude Code and Cowork, and made it clear that Anthropic is now looking at “different options to keep delivering a great experience,” which is another way of saying “we’re going to change the prices at some point.”

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Much, much more at the link, including a long section explaining why data centers have no chance of being profitable.

Ed also brings up the very important point that genAI's hallucinations and failures - and its sycophancy and promises to do things it can't do - will be a LOT less forgivable once individual users and businesses have to pay the actual compute costs of LLMs making all those mistakes.