AI's Affordability Crisis
AI's Cost CrisThe article highlights the growing affordability crisis in AI, where companies are facing massive costs due to token subsidies. Estimates show platforms like Anthropic and OpenAI are subsidizing token prices by up to 70 times. Recent financial disclosures reveal OpenAI's 2025 losses reached $38.5 billion, with 44% of revenue spent on sales and marketing. As companies shift to token-based billing, businesses are struggling with increased costs, leading to a reevaluation of AI's value. Despite high spending, adoption has remained flat, signaling a potential turning point in the AI industry.
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A year ago in The Back Of The AI Envelope I pointed out that the AI platforms were running the drug-dealer's algorithm, "the first one's free". By massively subsidizing the use of their products, they were generating overwhelming demand for them. They used this demand to justify massive investments, in the hope that, by the time they had to show a return on these invetment, the users would be so addicted that they would pay the vastly higher prices needed to generate a return.
I have to confess that I was late to the party. The earliest skepticism I've been able to find was from Sequoia Capital's David Cahn in September 2023, entitled AI’s $200B Question. Only nine months later Cahn re-ran the same analysis in AI’s $600B Question. His estimate of the revenue gap had tripled. Cahn wasn't alone. Independent journalists such as Ed Zitron were flagging this problem long before I was.
I started to write this post a couple of months ago when the maiinstream business press began to notice companies complaining about the cost of the tokens their employees were burning. Since then the trickle has turned into a flood, which made finishing the post hard. Below the fold I throw up my hands and dump out a small sample from the flood.
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