AI Model Prices Are Falling At The Worst Moment For The U.S. Frontier Labs
AI Model Prices Are Falling At The Worst Moment For The U.S. Frontier LabsThe price war is on. What happens to the OpenAI and Anthropic?
Anthropic and OpenAI have been raising and spending vast amounts of cash to build the world’s most powerful AI models, assuming that owning the frontier will generate a massive return. But just as their IPO window is opening, the competition is releasing new, competitive models at a fraction of the cost, setting the stage for an AI price war at the worst possible time. In just the past eight days, Meta, SpaceX, and Moonshot, a competitor in China, have all released new models at price points that suggest frontier intelligence is going to look more like a commodity than a premium-priced asset. Meta’s Muse Spark 1.1, released last week, is competitive with Anthropic’s Opus 4.8 model on some benchmarks at a fraction of the price. SpaceX’s Grok 4.5, released on Thursday, is less than half the price of Opus 4.8 and competitive on coding benchmarks. And Moonshot’s newly released Kimi K3, a massive 2.8-trillion-parameter model, is poised to go open-weight and potentially undercut the U.S. labs’ pricing power, though its size makes it expensive to run. “A world where there are only 2-3 dominant frontier labs with 90% inference margins is net negative for every other layer while being awesome for those 2-3 labs,” Gavin Baker, managing partner at Atreides Management, said on Friday. “Anything that lowers margins and increases competition at the model layer is good for every other AI layer: power, semiconductors, hyperscalers, neoclouds and yes even software.” Increasingly, it’s looking like there may eventually be six or more frontier AI developers instead of two or three, and that could cut the model margins dramatically. The real value in AI, therefore, will be built on developing the best products sitting on top of those models. The good news for Anthropic and OpenAI is that they are already developing the world’s best AI products, alongside the best models, and those products are lucrative. A year ago, for instance, Anthropic’s business was mostly API, but now there’s a strong mix of API and its own products. “Products play a much bigger role for Anthropic than they did a year ago,” Boris Cherny, the head of Claude Code, told me in a May interview. “That’s definitely the case.” The bad news for the labs, however, is that instead of competing with a narrow band of companies to develop top-tier AI models and profit, they’ll now compete with everyone on the product front. And that could be daunting as they lose money developing models and watch their margins compress. There is a certain irony to what’s happening in AI today. For a long time, there was a question of whether any product built on top of an AI model could be valuable or would simply be a ‘wrapper’ that would inevitably be swallowed by the model itself. Now, it turns out, the wrapper may be the value layer. Why Specialized AI Models Are Challenging the Frontier Labs — With DeepL CEO Jarek Kutylowski (sponsor)
Jarek Kutylowski is the CEO of DeepL. Kutylowski joins Big Technology Podcast to discuss why specialized AI models are beginning to challenge the industry’s biggest general-purpose systems. He explains how purpose-built models can deliver better accuracy, lower latency, and reduced costs, and why companies are increasingly using model routers to choose the right AI for each task. We also explore how real-time translation could help businesses expand across borders, why voice represents AI's next frontier, and whether glasses and other wearables could give models a better understanding of the physical world. Finally, Kutylowski shares his perspective on AI’s rapid progress, its impact on work and society, and the possibility that seamless translation could allow anyone in the world to communicate with anyone else. What Else I’m Reading, Etc.Google delays its latest Gemini launch due to performance issues [Bloomberg] The details on OpenAI’s first device: A proactive, personal companion that [Bloomberg] Satya Nadella says AI companies train off your ‘exhaust’ when you use LLMs [Satya Nadella] Apple asked 40 OpenAI employees to preserve their documents ahead of its lawsuit [MacRumors] The U.S. and Iran might be heading toward a wider war [WSJ] This Week On Big Technology Podcast: AI Pioneer Jürgen Schmidhuber: AI Already Feels Pain, Loves, and Is Self-Aware
Jürgen Schmidhuber is an AI pioneer and professor whom The Guardian has called “the father of AI.” Schmidhuber joins Big Technology Podcast to discuss whether current AI techniques can actually reach AGI. Tune in to hear him spar with Greg Brockman’s case for scaling GPT models alone, argue that AI has been capable of pain and consciousness since the early 1990s, and predict the collapse of today’s trillion-dollar AI spending. We also cover the hardware bottleneck holding back robots, free will in a computable universe, and uploading human minds into machines. Hit play for a wide-ranging conversation with one of the researchers whose ideas built the foundation of modern AI. You can listen on Apple Podcasts, Spotify, or your podcast app of choice Thanks again for reading. Please share Big Technology if you like it! And hit that Like Button it’s the value layer on top of a commodity My book Always Day One digs into the tech giants’ inner workings, focusing on automation and culture. I’d be thrilled if you’d give it a read. You can find it here. Join Big Technology’s Private Discord Server!Where we’ll talk about this story, the latest in AI, the week’s podcast, and plenty more. You can sign up via the link below:... Subscribe to Big Technology to unlock the rest.Become a paying subscriber of Big Technology to get access to this post and other subscriber-only content. A subscription gets you:
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