What margins? AI’s business model is changing fast, says Cohere founder

OpenAI and Anthropic spend billions of dollars a year training models like GPT-4 and Claude, but competitive price dumping is making the business around these platforms rather precarious. Aidan Gomez, CEO of competing AI provider Cohere, says that selling access to models is quickly becoming a “zero margin business” in a podcast appearance on Monday. For now, these AI models cost more than they make. “If you’re only selling models, for the next little while, it’s gonna be a really tricky game,” said Gomez in an interview with 20VC’s Harry Stebbings. By “selling models,” he means selling API access to those AI models; OpenAI, Anthropic, Google and Cohere offer this service to developers, and they’re all facing a similar problem. “It’s gonna be like a zero margin business because there’s so much price dumping. People are giving away the model for free. It’ll still be a big business, it’ll still be a pretty high number because people need this tech — it’s growing very quickly — but the margins, at least now, are gonna be very tight.” Companies building AI models on the cutting edge are in fierce competition with each other. The most reliable strategy for improving AI models today is adding more compute, which means cutting big checks to Nvidia for the hardware needed to make AI models a hair smarter. At the same time, there’s a race to the bottom. OpenAI and Google have slashed prices for accessing their AI models in order to retain users — while Meta’s open source models are simply free to license. “That’s why there is a lot of excitement at the application layer,” said Gomez, referencing OpenAI’s $20 a month ChatGPT subscription. Gomez says Cohere’s AI models will be an attractive business in the long term, but products could be a meaningful way to generate revenue until then.

Full story : Cohere AI founder and CEO Aidan Gomez says that competition is making artificial generative intelligence a zero margin business.