- There is no "moat" (lasting, easy-to-defend technological edge) in AI model businesses. There are just short-term advantages.
- An AI business is a capital-intensive business, just like old factories. Data centers are expensive, models are energy-hungry, and the hardware inside must be replaced every 3–4 years.
- Smaller, specialized models eat margins from below. Transcription, voice, or image detection do not need large models.
There is no reason to expect high margins like you can in traditional software business. Benefits of AI go mostly to consumers.
edit: There is potential for economies of scale. Few megacorps can strive for cost advantage when they achieve scale (Microsoft, Google, Amazon and Meta)
It does seem like the structural characteristics we’ve observed so far suggest there is a kind of flywheel from short-term to long-term advantage due to the capital requirements at various levels.
If you’re Nvidia, making the best GPUs today, the expanding wavefront of demand is consuming them with volume and margins to give you a huge edge in building out the best next generation of GPUs. Similar to how the mobile wave gave TSMC sustained advantage for about a decade now.
I’m guessing this is also what we’re seeing as Anthropic and OpenAI swap spots in the token-vendor market.
If you get a not-quite-the-best gaming GPU like a 5080, you can run local models that are better than the state of the art from early 2025. Depending on what you want to do, you might have to switch models. The one size fits all huge models are still a data center thing.
So there is a bigger incentive to run locally something that's gonna get you $20 or $100 worth of bills to OpenAI than to mirror something that is actually free.
Example: In the past there was a whole market for sound cards, if you wanted your computer to have any "multimedia" capabilities you needed to get a sound blaster but now everybody assumes a computer will produce sound, and it's basically for free as all chips have it. Now sound interfaces are still a thing but only for audiophiles who are esoteric enough like me to believe that it's worth to have that extra hi-fi quality.
What I think it could happen, is that eventually AI will be part of all the chips, just like soundcards. And there will be people who will buy specialized AI from companies that perhaps are not OpenAI or Anthropic but second-generation sleepers who watched the carnage in the market and decided to enter when it was reasonable.
This could be Apple, or Nvidia or something new. They're just waiting for the others to do the research and introduce the taste for it to the masses, just like sound blaster made us fall in love with high fidelity sound in our computers.
Probably nothing. Most users have no idea what an LLM is or how it runs. Anecdotally speaking, I see many LLM users default to whatever their day job provides to them. And even slightly more sophisticated users seem ok with paying for their openai or anthropic subscriptions.
Maybe we will see a small but dedicated group of open weight model users who prefer local llm, but everybody else will just consume from the big providers? The scenario might look something like OS choices today - a small, committed group of Linux users vs the vast majority of other users running Windows, MacOS, or Chrome?
A new game is a totally new world with everything created from scratch. A creation. A model, on the other hand, is a reinterpretation machine for hundreds of years of human creations, but not a creation in itself, more like a discovery.
You would think that by now we would have a much better Bitcoin that's taking over the payment networks of the world but what we actually got is a shitload of shitcoin.