Interesting read. I don't know if I quite buy the evidence, but it's definitely enough to warrant further investigation. It also matches up with my personal experience, which is that tools like Claude Code are burning through more and more tokens as we push them to do bigger and bigger work. But we all know the frontier model companies are burning through money in an unsustainable race to get you and your company hooked on their tools.
So: I buy that the cost of frontier performance is going up exponentially, but that doesn't mean there is a fundamental link. We also know that benchmark performance of much smaller/cheaper models has been increasing (as far as I know METR only looks at frontier models), so that makes me wonder if the exponential cost/time horizon relationship is only for the frontier models.
> But we all know the frontier model companies are burning through money in an unsustainable race to get you and your company hooked on their tools.
Do we? Because elsewhere in the thread there's people claiming they are profitable in API billing and might be at least close to break even on subscription, given that many people don't use all of their allowance.
You have (limited) 100 Coke cans to sell (that you bought for say $1)
There are two large lines being formed for that. One line is offering an average $3 per bottle and another line is offering an average $2 per bottle.
Tell me which line they would throttle/starve even though they make a profit out of it.
Also, when the lines were formed you had no idea of the average price, but now you are getting a clear picture. Would you change your strategy / pricing or stick with your original "give the bottle to everyone for the same initial $1 price"
If I owned two lines both selling the same thing (preumably here Coke is a stand-in for compute), I would throttle the $2 dollar line. People without a choice might move to the $3 dollar line.
Unfortunately, back in the real world, Anthropic is dealing with two issues:
1. They're throttling all lines. Their latest model uses more tokens overall. Tokens are being rationed and context is being lowered.
2. There's another line for Pepsi right over there. And it costs $1.25 per can.
Anthropic should be lowering their price to compete with OpenAI, but they're not. They're making it even more expensive.
So tell me, does that really look like Anthropic is running a (as some people say) >50% profit margin?
for all you know, you think you are standing in the $3 line, but it really is $2 line and $3 line is BigCos, Govt and others who have guaranteed demand for several years.
Like I said, majority of people (including smart ones) are going to be surprised by the profit margins of AI labs and there will be a mad rush to buy AI stocks till it reaches bubble proportions.
2025 was merely a 1996 "Irrational Exuberance" moment. We haven't seen the late 1999 mania yet
So: I buy that the cost of frontier performance is going up exponentially, but that doesn't mean there is a fundamental link. We also know that benchmark performance of much smaller/cheaper models has been increasing (as far as I know METR only looks at frontier models), so that makes me wonder if the exponential cost/time horizon relationship is only for the frontier models.