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Comment by alphager | Hacker News Reader

Even if Moore's law was still in effect and the computer resources required stayed the same and compute stayed as efficient per watt (neither is true), it would just halve compute costs every 18 months. You're able to read about people hitting $4000 costs/month on the $200 plan upthread. That's 8 years until it's cost effective.

Are they really ready to burn money for 8 years?

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Uber operated at a loss for 9 years. They're now a profitable, market-winning business.

Amazon operated at a loss for 9 years, and barely turned a profit for over a decade longer than that. They're now one of the greatest businesses of all time.

Spotify operated at a loss for 17 years until becoming profitable. Tesla operated at a loss for 17 years before turning a profit. Palantir operated at a loss for 20 years before turning a profit.

And this was before the real age of Big Tech. Google has more cashflows they can burn than any of these companies ever raised, combined.

Those aren’t good comparisons.

Uber operated at a loss to destroy competition and raised prices after they did that.

Amazon (the retailer) did the same and leveraged their position to enter new more lucrative markets.

Dunno about Spotify, but Tesla and palantir both secured lucrative contracts and subsidies.

Anthropic is against companies with deeper pockets and can’t spend to destroy competition, their current business model can only survive if they reduce costs or raise prices. Something’s got to give

They are good comparisons. All startups go against incumbents/competitors with deeper pockets.

Re: Anthropic specifically, I tend to agree, hence why I'm saying the deeper pockets (eg. Google, Amazon, etc) are perfectly positioned to win here. However, big companies have a way of consistently missing the future due to internal incentive issues. Google is deathly afraid of cannibalizing their existing businesses.

Plus, there's many investors with deep pockets who would love to get in on Anthropic's next round if their technical lead proves to be durable over time (like 6 months in AI terms).

This fight is still early innings.

Haven't they already cannibalized search? It really sucks now.

Google search results "sucking" probably is an indication that they are squeezing money out of it well. Just because you don't like the results you are getting doesn't mean the average user isn't still using Google a ton and generating $$$ for Goog

It’s true startups go against deeper pockets, but I stand by my analysis since Uber / Amazon / Tesla (to a degree) were early tech companies going against old companies and not competing with others doing the exact same thing. They operated at a loss to defeat the old guard. Today that model doesn’t work well, and Anthropic are against deeper pockets that are doing nearly the exact same thing as them. If they were the only innovative company with huge outside investment against entrenched and unwilling to innovate older companies like Uber and Amazon then I’d agree there was a bigger chance.

And I like Anthropic, I want them to be successful, but they just can’t operate at a loss like this for long, they have to make some tough calls, and trying to cut corners behind the scenes is not good for long term trust

Could this just be survivorship bias? How many companies burned money until they died? This isn't some hot take. I'm kinda interested. Surely more companies failed with this model than survived.

Anecdotally have worked for a company in the past that did just that and eventually went bankrupt. Know of many many more just in my city, for what it’s worth.

As long as Anthropic is better than their competitors they’ll continue to get my business.

Well, those companies were all successful, it's a bit of survivorship bias to only consider those. How many companies operated at a loss for years and eventually went out of business?

Uber is profitable now, on a yearly basis. But they still presumably have a long way to go until they're actually profitable in the sense that they've made a profit over the lifetime of their existence.

Amazon pivoted to a totally different business that was profitable from the get-go.

Google became profitable within a couple of years of starting and went into the black on total lifetime spend almost immediately. As was normal, back then.

Those decades of 0 interest rate is now gone though. And if only 1 competitor will survive well like in all above sectors then sure it might feel fine now but almost a trillion dollars of private investment is waiting to sink.

I think people also expect models to be optimised over time. For example, the 5x drop in cost of o3 was probably due to some optimisation on OpenAI's end (although I'm sure they had business reasons for dropping the price as well).

Small models have also been improving steadily in ability, so it is feasible that a task that needs Claude Opus today could be done by Sonnet in a year's time. This trend of model "efficiency" will add on top of compute getting cheaper.

Although, that efficiency would probably be quickly eaten up by increased appetites for higher performance, bigger, models.

Every subscription service loses money on its heavy users. What matters is the average. Lots of people go for the higher plan because they need it once, then never downgrade even if their regular usage doesn't justify it. And then there are all the people paying for months where they don't use it at all

Among private users willing to pay $200/month average usage is likely very high, but if Anthropic can convince companies to buy plans for entire departments average usage will be much lower on those.

Another issue is that $4000 costs is assuming the regular API is offered at cost, which is unlikely to be true.

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