Techcrunch reports that AI coding tools have "very negative" gross margins. In other words, they are losing money on every user.
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Yes, this is part of the business model. The goal is to get everyone addicted to their service, then jack the price up to profitable margins. It's the same model Netflix and Amazon used. Bothe services lost money for over 10 years before becoming profitable.
Venture capitalism is what it's called, I think
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Current gen models got less accurate and hallucinated at a higher rate compared to the last ones, from experience and from openai. I think it's either because they're trying to see how far they can squeeze the models, or because it's starting to eat its own slop found while crawling.
https://cdn.openai.com/pdf/2221c875-02dc-4789-800b-e7758f3722c1/o3-and-o4-mini-system-card.pdf
Those are previous gen models, here are the current gen models: https://cdn.openai.com/pdf/8124a3ce-ab78-4f06-96eb-49ea29ffb52f/gpt5-system-card-aug7.pdf#page10
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Holy crap, has anyone ever attempted to create an "AI fork bomb"? Go to one of these agent bots, and tell it to create accounts with the other agent code bots. These new accounts will all be told to create accounts on all the other code bots services. And do this recursively forever. So the flow would be 1 bot makes lets say 5 bots. Each of those 5 bots make 5 more bots. And each of those 5 bots make 5 more. So the total number of running bots becomes like 1 * 5 * 5 * 5 * 5...
Obligatory, this is purely hypothetical, and you should never do this for legal reasons.
Sounds like a great idea, although no, commoners are not given the same privileges as capitalists. So I'm afraid there will be problems indeed.
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Exclusive: The high costs and thin margins threatening AI coding startups
Coding assistant startups are highly unprofitable, says a source familiar with Windsurf financials.
TechCrunch (techcrunch.com)
Caveat: this applies to literally every new technology especially in the VC funded world.
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how do you book software work so far out? for some reason my software clients seem to all want their stuff yesterday
I've been doing it for like 20+ years now so I have a very solid client base and very solid referrals. All my new clients now are referred to me by previous/existing clients so it gives me the luxury of booking well in advance.
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AI Is A Money Trap
In the last week, we’ve had no less than three different pieces asking whether the massive proliferation of data centers is a massive bubble, and though they, at times, seem to take the default position of AI’s inevitable value, they’ve begun to sour on the idea that
Ed Zitron's Where's Your Ed At (www.wheresyoured.at)
Damn. We're looking at another recession when this bubble bursts, aren't we?
Just great.
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AI Is A Money Trap
In the last week, we’ve had no less than three different pieces asking whether the massive proliferation of data centers is a massive bubble, and though they, at times, seem to take the default position of AI’s inevitable value, they’ve begun to sour on the idea that
Ed Zitron's Where's Your Ed At (www.wheresyoured.at)
Thanks buddy!
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This post did not contain any content.
Exclusive: The high costs and thin margins threatening AI coding startups
Coding assistant startups are highly unprofitable, says a source familiar with Windsurf financials.
TechCrunch (techcrunch.com)
Basically, the only reason some of these vaguely functional AI tools actually work okay is because they haven't been ruined with inevitable monetisation yet.
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Venture capitalism is what it's called, I think
Venture capitalism is when you give somebody money to start a business in hopes that they make it big, giving you really valuable equity for relatively little money. What you're thinking of is blitzscaling. Scale up in an unsustainable way in order to gain market dominance, so that you can use that to become profitable.
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Basically, the only reason some of these vaguely functional AI tools actually work okay is because they haven't been ruined with inevitable monetisation yet.
Already the cost is quite high. A prolific year can easily burn 100usd a day in tokens and they have not even started to enshitify.
Some of the cost to run these models will come down a bit if Nvidia gets some actual competition which I'm sure will happen in the medium to long term because the hyper scalers definitely don't like paying Nvidia's AI ransom and the Chinese don't want to be beholden to a company the US can influence.
We will see which happens first.
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I've been doing it for like 20+ years now so I have a very solid client base and very solid referrals. All my new clients now are referred to me by previous/existing clients so it gives me the luxury of booking well in advance.
I appreciate your response!
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Venture capitalism is what it's called, I think
It is not venture capitalism. Though it is fueled by venture capitalism. I am describing the type of car and you are calling it gasoline. They're most distinctly not the same thing.
However it should be noted there both a part of the same corrosion of our society. Just how automobiles that run on gasoline are a corrosion on our atmosphere.
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This post did not contain any content.
Exclusive: The high costs and thin margins threatening AI coding startups
Coding assistant startups are highly unprofitable, says a source familiar with Windsurf financials.
TechCrunch (techcrunch.com)
In other words, they want to hook up users and companies, make them dependent, and then rise up the prices severely while finding ways to process and incorporate all of the data they've gathered in ways that will probably involve automating the jobs of the users themselves.
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Damn. We're looking at another recession when this bubble bursts, aren't we?
Just great.
recessions work themselves out. I'm worried it'll pitch us into a worldwide depression coupled with trump's tarriff bullshit.
it's the 1920s all over again. smoot hawley fascists and clouds of war
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I mean, I agree that a lot of money was spent training some of these models - and I personally wouldn't invest in an ai based company. The economics dont make sense.
However, worst case, self hosted open source models have got pretty good, and I find it unlikely that progress will simply stop. Diminishing returns from scaling data yes, but there will still be optimizations all through the pipeline.
That is to say, LLMs will continue to have utility regardless if Open AI and Anthropic are around long term.
However, worst case
worst case the self hosted ai still has to be trained on stolen corpus.
worst case the self hosted ai still has ridiculous consumption of resources.
there's a bunch much much worse cases than your worst case even touches.
you don't even consider how it's built on theft at all anymore do you?
fucking ai bros
edit: whiney pouty downvotes won't change the fact that you've been taken by a cult of morons lol
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In other words, they want to hook up users and companies, make them dependent, and then rise up the prices severely while finding ways to process and incorporate all of the data they've gathered in ways that will probably involve automating the jobs of the users themselves.
aka enshittification
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The usual business plan is to reinvest all earnings into growth. So you're losing money, but gaining market share. Tesla, Amazon, etc all did this. They could stop at any point and turn a profit, but they chose to pursue a growth instead.
AI companies are currently not making enough revenue to even cover their operating costs. Even so, they are pouring all of their money into more video cards that, once installed and configured, immediately start losing money.
I don't think they're gaining any market share, especially after the Chinese produced nearly identical services.
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This post did not contain any content.
Exclusive: The high costs and thin margins threatening AI coding startups
Coding assistant startups are highly unprofitable, says a source familiar with Windsurf financials.
TechCrunch (techcrunch.com)
Man I cannot fucking wait until this stupid goddamn bubble pops
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I don't think they're gaining any market share, especially after the Chinese produced nearly identical services.
If anything, a smaller market share is better for business. The more users they have the faster they lose money.
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Man I cannot fucking wait until this stupid goddamn bubble pops
Me too. I can then go back to 3D printing quantum blockchains out of room temperature superconductors in my private space station with Katy Perry.
