Comment by gradus_ad

>How will the Google/Anthropic/OpenAI's of the world make money on AI if open models are competitive with their models?

According to Google (or someone at Google) no organization has moat on AI/LLM [1]. But that does not mean that it is not hugely profitable providing it as SaaS even you don't own the model or Model as a Service (MaaS). The extreme example is Amazon providing MongoDB API and services. Sure they have their own proprietary DynamoDB but for the most people scale up MongoDB is more than suffice. Regardless brand or type of databases being used, you paid tons of money to Amazon anyway to be at scale.

Not everyone has the resource to host a SOTA AI model. On top of tangible data-intensive resources, they are other intangible considerations. Just think how many company or people host their own email server now although the resources needed are far less than hosting an AI/LLM model?

Google came up with the game changing transformer at its backyard and OpenAI temporarily stole the show with the well executed RLHF based system of ChatGPT. Now the paid users are swinging back to Google with its arguably more superior offering. Even Google now put AI summary as its top most search return results for free to all, higher than its paid advertisement clients.

[1]Google “We have no moat, and neither does OpenAI”:

https://news.ycombinator.com/item?id=35813322

This is exactly why the CEO of Anthropic has been talking up "risks" from AI models and asking for legislation to regulate the industry.

> What hurt open source in the past was its inability to keep up with the quality and feature depth of closed source competitors

Quality was rarely the reason open source lagged in certain domains. Most of the time, open source solutions were technically superior. What actually hurt open source were structural forces, distribution advantages, and enterprise biases.

One could make an argument that open source solutions often lacked good UX historically, although that has changed drastically the past 20 years.

People and companies trust OpenAI and Anthropic, rightly or wrongly, with hosting the models and keeping their company data secure. Don't underestimate the value of a scapegoat to point a finger at when things go wrong.

Either...

Better (UX / ease of use)

Lock in (walled garden type thing)

Trust (If an AI is gonna have the level of insight into your personal data and control over your life, a lot of people will prefer to use a household name)

I don't see what OpenAI's niche is supposed to be, other than role playing? Google seems like they'll be the AI utility company, and Anthropic seems like the go-to for the AI developer platform of the future.

It’s convenience - it’s far easier to call an API than deploy a model to a VPC and configure networking, etc.

Given how often new models come out, it’s also easier to update an API call than constantly deploying model upgrades.

But in the long run, I hope open source wins out.

Yes but how do you find the best open model? You check google.

> Infrastructure owners with access to the cheapest energy will be the long run winners in AI.

For a sufficiently low cost to orbit that may well be found in space, giving Musk a rather large lead. By his posts he's currently obsessed with building AI satellite factories on the moon, the better to climb the Kardashev scale.

Pure models clearly aren’t the monetizing strategy, use of them on existing monetized surfaces are the core value.

Google would love a cheap hq model on its surfaces. That just helps Google.

> How will the Google/Anthropic/OpenAI's of the world make money on AI if open models are competitive with their models?

So a couple of things. There are going to be a handful of companies in the world with the infrastructure footprint and engineering org capable of running LLMs efficiently and at scale. You are never going to be able to run open models in your own infra in a way that is cost competitive with using their API.

Competition _between_ the largest AI companies _will_ drive API prices to essentially 0 profit margin, but none of those companies will care because they aren't primarily going to make money by selling the LLM API -- your usage of their API just subsidizes their infrastructure costs, and they'll use that infra to build products like chat gpt and claude, etc. Those products are their moat and will be where 90% of their profit comes from.

I am not sure why everyone is so obsessed with "moats" anyway. Why does gmail have so many users? Anybody can build an email app. For the same reason that people stick with gmail, people are going to stick with chatgpt. It's being integrated into every aspect of their lives. The switching costs for people are going to be immense.

> How will the Google/Anthropic/OpenAI's of the world make money on AI if open models are competitive with their models?

They won't. Actually, even if open models aren't competitive, they still won't. Hasn't this been clear since a while already?

There's no moat in models, investments in pure models has only been to chase AGI, all other investment (the majority, from Google, Amazon, etc.) has been on products using LLMs, not models themselves.

This is not like the gold rush where the ones who made good money were the ones selling shovels, it's another kind of gold rush where you make money selling shovels but the gold itself is actually worthless.

I call this the "Karl Marx Fallacy." It assumes a static basket of human wants and needs over time, leading to the conclusion competition will inevitably erode all profit and lead to market collapse.

It ignores the reality of humans having memetic emotions, habits, affinities, differentiated use cases & social signaling needs, and the desire to always want to do more...constantly adding more layers of abstraction in fractal ways that evolve into bigger or more niche things.

5 years ago humans didn't know a desire for gaming GPUs would turn into AI. Now it's the fastest growing market.

Ask yourself: how did Google Search continue to make money after Bing's search results started benchmarking just as good?

Or: how did Apple continue to make money after Android opened up the market to commoditize mobile computing?

Etc. Etc.

[dead]

> How will the Google/Anthropic/OpenAI's of the world make money on AI if open models are competitive with their models?

hopefully they won't

and their titanic off-balance sheet investments will bankrupt them as they won't be able to produce any revenue