The AI boom has turned the standard profit margin model on its head, according to Apollo Chief Economist Torsten Slok—and it’s making the industry’s growth unsustainable.
I didn’t go to business school, so take this with a grain of salt: doesn’t business solvency require you to charge more for your product than it cost you to produce it and bring it to market?
in theory, in practice you just need to be convincing enough to get greedier/dumber people to pay for your shit in the gamble they might get more in return later. (they like to call themselves “investors”, but most are just degenerate gamblers) and then cover your own ass if/when the house of cards tumbles.
building and popping bubbles, and fleecing as many people as possible throughout the whole thing, is what the US financial markets casino is literally designed to facilitate
Powerful people are willing to pay a large price to manipulate the masses.
As7de from that, the plan is to lose money for years gobbling up all the data before there’s laws that actually get enforced to protect against it, and to get an entire generation of college kids and workers dependant on using AI, with companies relying heavily on its usage. This is happening to a huge degree right now with data entry, “vibe coders”, Law firms, and healthcare.
Those people won’t really be able to transition back or away from AI. They’ll be dependent on it. And AI will start charging them way more than they are now. And they’ll eat the costs and pay it.
So it’s stealing data while it’s free or nearly free, power to manipulate all the sheeple, create dependency.
I seriously doubt you read that article if that was your only takeaway from it.
Nobody is winning the LLM lab race, all of their unit economics are garbage and every new subscriber actually makes that situation worse instead of better. Furthermore, I’m running a open 30 billion parameter LLM on my laptop via Ollama right now, so what the fuck do I need lyin’ Sam Altman for?
At this point I’m just here to watch Oracle crash and burn.
But it doesn’t work!
You hear all sorts of anecdotes about a business who retrenched their workforce to replace with LLMs, everything comes crashing down and they have to rehire all their workforce at higher rates.
It would be interesting to see actual verified numbers.
I am sure that a lot of useless people can be replaced with computers, but most of the time, all it requires is a very small sh script, it doesn’t need a monstrous data centre that uses more water and power than a human.
It doesn’t work for some people and some businesses and when that happens, it gets blasted all over the place because it makes for a good headline.
Tons of jobs have been replaced by ai, though. Especially customer service chats and online help and a LOT of game production and design art jobs and music and editing jobs.
Plus all the jobs where people are still there but heavily relying on ai.
At least in the tech industry that doesn’t apply if the investors believe that the technology or application is promising enough. Look at Uber’s example. They lost very large amounts of money for many years before turning a profit. They were able to do this because the investors kept sustaining them through their unprofitable years.
The same thing has been happening for years with the AI companies. I heard a while back that OpenAI wouldn’t turn a profit on their services even if they charged end users $100/month.
Good article, thanks! That provides better context for how the major AI companies’ finances compare with Uber’s, but I can’t think of a better example to use for a company that operated at massive losses for many years due to being propped up by investors. If you have a better example I could use, I would be glad to do it. Otherwise, if this question comes up again in the context of AI, I’ll be sure to include a link to that article.
There isn’t a better example. This level of FOMO bullshit hasn’t happened since the Dutch went bonkers over tulips.
Chatbot labs have the worst unit economics of any companies in recent memory. They only reason they still have doors open is VC money & that is now drying up. Unlike Uber, they will never become profitable. That’s why you are seeing the push to IPO so they can loot your retirement accounts via the stock market.
This level of FOMO bullshit hasn’t happened since the Dutch went bonkers over tulips.
Haha, now that’s a great comparison! I mentioned to a co-worker a couple weeks ago that we should get ready to invest in the next bubble coming up after this one pops, probably tulip bulbs (again).
Uber is an example of government corruption leveraged to overthrow a market. The livery industry required special licensing, so only licensees were legally allowed to do it. Uber then started doing it without the $1 million per license overhead, bribed the government to ignore that, and naturally undercut their competitors that had huge government-imposed overheads that Uber didn’t. They were initially unprofitable because they had to compete for business, then became profitable when the government helped then destroy their competitors and structure their pay so as to have no minimum wage.
If you only look at modern examples, youre looking at a funhouse mirror reflection of real business operations. Running at a loss for a decade while you create a monopoly is the path to business success today, but this is not a functioning market. Real business success involves making money right out of the gate or at least right after. If your business only works if it is a near-monopoly, it is not a sound one.
I completely agree with your conclusion. Just to be clear, I was in no way saying that what Uber did and OpenAI does is OK. They both suck and should never be allowed to operate as they had and have. I don’t know if Uber was government corruption though, at least I had never heard it described as such. What I have heard is that they found loopholes in taxi laws around the world and employed a global army of lawyers exploit those loopholes.
At least in the USA, livery workers were required to have a “medallion”, which is essentially an onerously expensive license with the stated purpose of restricting competition to the point of profitability for those workers. There was no loophole, and it was ridgidly enforced.
Then, Uber came in and started violating that law so flagrantly that governments seemed stunned into inaction. The government corruption comes in where they then decided not to enforce those rules on Uber for some reason around the same time Uber aggressively contributed to political campaigns around the world.
I went down this line of discussion to point out that Uber is not a good example of organic business success that started out financially underwater. Their ethics or lack of them is an aside to the discussion, but agreed, they are unrepentant scumbags.
Got it, thanks. My memory of how Uber was able to gain a foothold was a little different, but my memory of it was patchy anyway. My recollection was that they essentially said that Uber was not a taxi service. They sold it as just regular people offering to “share” a ride with someone else to an area that they were going to anyway. I have no doubt that heavy political contributions were part of their arsenal in their attack on the taxi industry and regulations, so I agree that this was government corruption. But I also recall that they also had armies of lawyers fighting at every level of government around the world to ram through the idea that this wasn’t a taxi service and shouldn’t be subject to taxi regulations. Maybe my memory is more patchy than I thought, or perhaps both things were true - government corruption and a legal war allowed them flourish.
I didn’t go to business school, so take this with a grain of salt: doesn’t business solvency require you to charge more for your product than it cost you to produce it and bring it to market?
in theory, in practice you just need to be convincing enough to get greedier/dumber people to pay for your shit in the gamble they might get more in return later. (they like to call themselves “investors”, but most are just degenerate gamblers) and then cover your own ass if/when the house of cards tumbles.
building and popping bubbles, and fleecing as many people as possible throughout the whole thing, is what the US
financial marketscasino is literally designed to facilitatedeleted by creator
Powerful people are willing to pay a large price to manipulate the masses.
As7de from that, the plan is to lose money for years gobbling up all the data before there’s laws that actually get enforced to protect against it, and to get an entire generation of college kids and workers dependant on using AI, with companies relying heavily on its usage. This is happening to a huge degree right now with data entry, “vibe coders”, Law firms, and healthcare.
Those people won’t really be able to transition back or away from AI. They’ll be dependent on it. And AI will start charging them way more than they are now. And they’ll eat the costs and pay it.
So it’s stealing data while it’s free or nearly free, power to manipulate all the sheeple, create dependency.
The chatbot labs (and Oracle) quite literally don’t have years.
https://www.wheresyoured.at/brokenomics/
Everybody doesn’t get to win a race…
I seriously doubt you read that article if that was your only takeaway from it.
Nobody is winning the LLM lab race, all of their unit economics are garbage and every new subscriber actually makes that situation worse instead of better. Furthermore, I’m running a open 30 billion parameter LLM on my laptop via Ollama right now, so what the fuck do I need lyin’ Sam Altman for?
At this point I’m just here to watch Oracle crash and burn.
But it doesn’t work! You hear all sorts of anecdotes about a business who retrenched their workforce to replace with LLMs, everything comes crashing down and they have to rehire all their workforce at higher rates.
It would be interesting to see actual verified numbers. I am sure that a lot of useless people can be replaced with computers, but most of the time, all it requires is a very small sh script, it doesn’t need a monstrous data centre that uses more water and power than a human.
It doesn’t work for some people and some businesses and when that happens, it gets blasted all over the place because it makes for a good headline.
Tons of jobs have been replaced by ai, though. Especially customer service chats and online help and a LOT of game production and design art jobs and music and editing jobs.
Plus all the jobs where people are still there but heavily relying on ai.
At least in the tech industry that doesn’t apply if the investors believe that the technology or application is promising enough. Look at Uber’s example. They lost very large amounts of money for many years before turning a profit. They were able to do this because the investors kept sustaining them through their unprofitable years.
The same thing has been happening for years with the AI companies. I heard a while back that OpenAI wouldn’t turn a profit on their services even if they charged end users $100/month.
Chatbots are nothing like Uber.
Good article, thanks! That provides better context for how the major AI companies’ finances compare with Uber’s, but I can’t think of a better example to use for a company that operated at massive losses for many years due to being propped up by investors. If you have a better example I could use, I would be glad to do it. Otherwise, if this question comes up again in the context of AI, I’ll be sure to include a link to that article.
There isn’t a better example. This level of FOMO bullshit hasn’t happened since the Dutch went bonkers over tulips.
Chatbot labs have the worst unit economics of any companies in recent memory. They only reason they still have doors open is VC money & that is now drying up. Unlike Uber, they will never become profitable. That’s why you are seeing the push to IPO so they can loot your retirement accounts via the stock market.
Haha, now that’s a great comparison! I mentioned to a co-worker a couple weeks ago that we should get ready to invest in the next bubble coming up after this one pops, probably tulip bulbs (again).
Good points, thanks.
Uber is an example of government corruption leveraged to overthrow a market. The livery industry required special licensing, so only licensees were legally allowed to do it. Uber then started doing it without the $1 million per license overhead, bribed the government to ignore that, and naturally undercut their competitors that had huge government-imposed overheads that Uber didn’t. They were initially unprofitable because they had to compete for business, then became profitable when the government helped then destroy their competitors and structure their pay so as to have no minimum wage.
If you only look at modern examples, youre looking at a funhouse mirror reflection of real business operations. Running at a loss for a decade while you create a monopoly is the path to business success today, but this is not a functioning market. Real business success involves making money right out of the gate or at least right after. If your business only works if it is a near-monopoly, it is not a sound one.
I completely agree with your conclusion. Just to be clear, I was in no way saying that what Uber did and OpenAI does is OK. They both suck and should never be allowed to operate as they had and have. I don’t know if Uber was government corruption though, at least I had never heard it described as such. What I have heard is that they found loopholes in taxi laws around the world and employed a global army of lawyers exploit those loopholes.
At least in the USA, livery workers were required to have a “medallion”, which is essentially an onerously expensive license with the stated purpose of restricting competition to the point of profitability for those workers. There was no loophole, and it was ridgidly enforced.
Then, Uber came in and started violating that law so flagrantly that governments seemed stunned into inaction. The government corruption comes in where they then decided not to enforce those rules on Uber for some reason around the same time Uber aggressively contributed to political campaigns around the world.
I went down this line of discussion to point out that Uber is not a good example of organic business success that started out financially underwater. Their ethics or lack of them is an aside to the discussion, but agreed, they are unrepentant scumbags.
Got it, thanks. My memory of how Uber was able to gain a foothold was a little different, but my memory of it was patchy anyway. My recollection was that they essentially said that Uber was not a taxi service. They sold it as just regular people offering to “share” a ride with someone else to an area that they were going to anyway. I have no doubt that heavy political contributions were part of their arsenal in their attack on the taxi industry and regulations, so I agree that this was government corruption. But I also recall that they also had armies of lawyers fighting at every level of government around the world to ram through the idea that this wasn’t a taxi service and shouldn’t be subject to taxi regulations. Maybe my memory is more patchy than I thought, or perhaps both things were true - government corruption and a legal war allowed them flourish.