Going up the value chain is much more difficult as opposed to going down. A packaging company for example will have a much harder time creating a snack company than the snack company creating a packaging company. The snack company will know exactly what it needs for its packaging and have strict requirements.
Down the chain you see what you need to do because you work directly with it everyday.
1. They are starting to do it. Take a look at OpenAI's product portfolio, there's a galaxy of attempts at application.
2. Selling tokens via long running agents is the only thing that's provably working with respect to revenue growth.
3. They need revenue yesterday. Increases in borrowing rates means access to capital isn't what it was in the 10s. Their runway is much shorter than you would imagine.
4. Some of the decision makers at these companies believe AI will exhibit Jevons Paradox and that any decrease in price will result in induced demand.
5. The frontier models are still subject to the limitations of AI. They're not good at everything. Better to have someone else learn that on their dime rather than yours.
The duopoly AI labs haven't technically borrowed much, but a metric ass-ton of money has been borrowed by various other entities in service of them as infrastructure proxies.
That's what is driving up the cost of debt and teetering some of these companies into junk status.
This is more or less the same as a question Alex Karp asked in that hilariously off-the-rails CNBC interview: why, if the code is so good, are they selling by the token and not asking for a cut?
I think OpenAI actually will ultimately start a fleet of consultancy/SaaS spinoff companies, each perhaps short-lived until the core product does the job out of the box.
Entrepreneurship 101 imo is that great companies only come from people who sufficiently care to see something through.
Unlikely the people that start these 100 companies, across totally disparate fields, and care enough to take them to market are staff members at OpenAI.
And it's already obvious a single company can't split its attention enough to do tons of disparate things well (see OpenAI's previous attempts at Atlas, the social network, Dots, etc)
It's basically the same reason why Apple didn't create every app in the App Store. No single company can be specialised in everything, and more importantly, selling tokens is risk-free money since they get a cut for every app without taking any business risk.
I think that’s a different argument. Apple absolutely “copies” hugely successful, durable apps. Just read about “getting sherlocked”. The rest of the apps are transient, niche and it’s easier to just harvest your cut of ads/payments.
There was/is a youtube commericial I think that gave away the game to some extent with regards to this. It was selling some platform to create apps. Everybody in the office rejoicing because they were all creating apps. Inevitably, like three people in the office make the same app.
I've experienced the same thing in real life a couple of times over.
I think Einstein's quote "A new type of thinking is essential if mankind is to survive and move toward higher levels." is apt. Apps will solve a bunch of problems, but if anyone can create those apps, there will be no market for them. I don't have the answers, but long term, it probably doesn't lie in selling apps. We've only just started.
At my regular job, we're just catching up on all the internal work we had. I think there is a real crunch in trying to figure out how to build moats and things that are hard to replicate that are sellable.
Maybe it will be the physical. Probably most of the moat will be made up of network effects and capital intensive processes. If I had the answer I'd probably be working on it right now.
They are doing that. That is why they have moved into the app layer. They are counting on software being replaced with agentic super apps. The only reason they aren’t starting actual service companies is that those still require human boots on the ground. But they are pushing their way into consulting (they bought my friends consulting firm)
It's very simple: because it is not working and it brings risk.
You can't fail software project you don't start. But if you can sell tokens to company that fails, that's just profit for you!
LLMs aren't good enough to do project from start (and I mean actual start - getting requirements, figuring out the market etc.) to end. Hell it apparently isn't even good enough to run simple web store (even if it can write one).
It is a great multiplier for people that already know what they want to do, so they are selling to them.
Why go into the hamburger business when you think you've got an infinite profitability recipe on your hand potentially. The big AI houses have doubled down and quadrupled down on their core founding myth for better or worse.
The AI boom is a full send. Either this works in spectacular fashion or it blows in spectacular fashion.
The standard analogy is selling shovels, not hamburgers.
OpenAI is selling people access to a tool to build things. OP is asking why they don’t just build the things themselves, which I believe is a fair question.
I think that the generative ui and self evolving databases per user is definitely coming, I think they are making this wager too. A lot of pieces of the ecosystem haven't been thought out fully yet and there is a shift in user experience e.g. a lot of people are more content with just using Dots then loading up apps and visuals, when they can just read what they needed to know.
For what it’s worth, they are doing that in limited areas. For example the Figma/Claude design controversy.
But you are right, building a business is a lot more than building a product. It’s also a lot more than just name recognition because they have no shortage of that either.
Because they want to be a platform for others to thrive. You make a lot more money when you are a successful platform than when you are a hundred successful products. That’s why Apple never made an iPhone for dentists.
In addition to what everyone’s saying about platform economics, the other big advantage of selling tokens to everyone rather than competing with them directly is that they get to see everyone’s tokens (and, with consent, train on them)
Selling tokens in conjunction with a phone number or credit card yields signals for surveillance for intelligence agencies that can be tied to individuals. This keeps the firms relatively out of trouble with the federal government. This makes them too big to fail. Being subject to such surveillance is in fact is a strong reason for conscious individuals to seek to move away from them in the long term once the quality of competing AIs reaches a shared plateau.
They're doing the other thing too via numerous startup acquisitions.
This fits, if NVidia fully believed in the LLMs/AGI future, why would they waste their super valuable GPUs by selling them? Why not just make your own LLM with the advantage of being one of the few major compute providers?
There's some kind of skill needed in an organization to make those llms. Openai and anthropic were able too. The other llm creators, not really. There's no guarantee that Nvidia would be another leader and not end up like meta or xai's attempt
First, two things can be true: the models can be amazingly good, and they can also be insufficient to run a company, at least now and maybe forever, because they are not "intelligent" in all the ways we are.
IMO the invention of AI is redefining what we think of as "intelligence". You would probably describe Albert Einstein as highly intelligent, and you'd probably also describe Bill Clinton as highly intelligent. Even before AI, you can easily look at that and see we aren't describing the same things even though we're using the same word. Einstein's intelligence is highly abstract, observational, mathematical. Clinton's is interpersonal, pursuasive, articulate, etc.
The AI we have today is extremely good at intellectual tasks like Einstein. It is not good at social intelligence and social agency like Clinton. Also, before you say that they can be really empathetic, persuasive, people are already socially dependent on them etc, that's not what I'm talking about. They are extremely knowledgeable about human socialising, but they cannot actually perform it. You could not set an AI out into the world to go and make a few friends.
I think the key moment will be if a single AI can get more than one person to care about what it has to say and what it's doing. Think about today how when someone tells you about their conversation with their AI agent, you probably roll your eyes because who cares, it's a highly individual experience.
Companies need a lot of this. They have to form relationships, become trusted amongst society, etc. AI cannot do this right now, and it's increasingly clear "intelligence" is not sufficient to do it, at least not in the way LLMs are intelligent. Maybe one day they will, but I'd imagine that will be another enormous leap in what AI even looks like akin to how ChatGPT was an enormous leap.
I mean it sounds stupid but I think its a fair question if you can spend 15 million and solve a millennium prize problem, what happens if you take the same resources and just aim the cannon at making money?
Why would they try to run a real business when they can publish blogs about how spooky the product is and then live out the plot of the 1994 film Blank Check
During a gold rush, sell shovels. They are investing heavily in in-house custom silicon, which is the shovel end of things. They could open more jewellery chains, but that is a very different kind of operation and it is in their interest to let others compete for that and use their resources on the shovel side of things.
Going up the value chain is much more difficult as opposed to going down. A packaging company for example will have a much harder time creating a snack company than the snack company creating a packaging company. The snack company will know exactly what it needs for its packaging and have strict requirements.
Down the chain you see what you need to do because you work directly with it everyday.
1. They are starting to do it. Take a look at OpenAI's product portfolio, there's a galaxy of attempts at application.
2. Selling tokens via long running agents is the only thing that's provably working with respect to revenue growth.
3. They need revenue yesterday. Increases in borrowing rates means access to capital isn't what it was in the 10s. Their runway is much shorter than you would imagine.
4. Some of the decision makers at these companies believe AI will exhibit Jevons Paradox and that any decrease in price will result in induced demand.
5. The frontier models are still subject to the limitations of AI. They're not good at everything. Better to have someone else learn that on their dime rather than yours.
>3. They need revenue yesterday. Increases in borrowing rates means access to capital isn't what it was in the 10s
This is a huge problem, why is it like this
The 10s were totally fake due to ZIRP.
they've borrowed so much they're directly competing with national governments in capital markets.
OpenAI has hardly borrowed anything. They have a $4B revolving credit line but have hardly touched it. They haven't issued any bonds.
Investment isn't debt.
> Investment isn't debt.
...yet.
> why is it like this
In part it is like this because they've already borrowed so much.
They have borrowed almost nothing.
Investment isn't debt.
Isn't investment like a form of debt, or well obligation to make returns?
If VC provide you funds, there is an expectation of returns, otherwise the board would vote you out.
Yeah it's not a traditional loan from a bank, but it's not a 0% interest loan either.
The duopoly AI labs haven't technically borrowed much, but a metric ass-ton of money has been borrowed by various other entities in service of them as infrastructure proxies.
That's what is driving up the cost of debt and teetering some of these companies into junk status.
Is 4 correct or incorrect? What data do we have so far in this regard?
This is more or less the same as a question Alex Karp asked in that hilariously off-the-rails CNBC interview: why, if the code is so good, are they selling by the token and not asking for a cut?
https://www.yahoo.com/entertainment/tv/articles/televised-ne...
I think OpenAI actually will ultimately start a fleet of consultancy/SaaS spinoff companies, each perhaps short-lived until the core product does the job out of the box.
Entrepreneurship 101 imo is that great companies only come from people who sufficiently care to see something through.
Unlikely the people that start these 100 companies, across totally disparate fields, and care enough to take them to market are staff members at OpenAI.
And it's already obvious a single company can't split its attention enough to do tons of disparate things well (see OpenAI's previous attempts at Atlas, the social network, Dots, etc)
It's basically the same reason why Apple didn't create every app in the App Store. No single company can be specialised in everything, and more importantly, selling tokens is risk-free money since they get a cut for every app without taking any business risk.
I think that’s a different argument. Apple absolutely “copies” hugely successful, durable apps. Just read about “getting sherlocked”. The rest of the apps are transient, niche and it’s easier to just harvest your cut of ads/payments.
idk they’ve created the most used and differentiating apps though
They aren't in the top 10 for either free or paid apps.
https://apps.apple.com/us/iphone/charts/36
That actually makes me wonder if Apple apps are not included because they come pre-installed.
There was/is a youtube commericial I think that gave away the game to some extent with regards to this. It was selling some platform to create apps. Everybody in the office rejoicing because they were all creating apps. Inevitably, like three people in the office make the same app.
I've experienced the same thing in real life a couple of times over.
I think Einstein's quote "A new type of thinking is essential if mankind is to survive and move toward higher levels." is apt. Apps will solve a bunch of problems, but if anyone can create those apps, there will be no market for them. I don't have the answers, but long term, it probably doesn't lie in selling apps. We've only just started.
At my regular job, we're just catching up on all the internal work we had. I think there is a real crunch in trying to figure out how to build moats and things that are hard to replicate that are sellable.
Maybe it will be the physical. Probably most of the moat will be made up of network effects and capital intensive processes. If I had the answer I'd probably be working on it right now.
They are doing that. That is why they have moved into the app layer. They are counting on software being replaced with agentic super apps. The only reason they aren’t starting actual service companies is that those still require human boots on the ground. But they are pushing their way into consulting (they bought my friends consulting firm)
It's very simple: because it is not working and it brings risk.
You can't fail software project you don't start. But if you can sell tokens to company that fails, that's just profit for you!
LLMs aren't good enough to do project from start (and I mean actual start - getting requirements, figuring out the market etc.) to end. Hell it apparently isn't even good enough to run simple web store (even if it can write one).
It is a great multiplier for people that already know what they want to do, so they are selling to them.
Bad argument.
Why go into the hamburger business when you think you've got an infinite profitability recipe on your hand potentially. The big AI houses have doubled down and quadrupled down on their core founding myth for better or worse.
The AI boom is a full send. Either this works in spectacular fashion or it blows in spectacular fashion.
The standard analogy is selling shovels, not hamburgers.
OpenAI is selling people access to a tool to build things. OP is asking why they don’t just build the things themselves, which I believe is a fair question.
who will be in the bread line if it blows
I think that the generative ui and self evolving databases per user is definitely coming, I think they are making this wager too. A lot of pieces of the ecosystem haven't been thought out fully yet and there is a shift in user experience e.g. a lot of people are more content with just using Dots then loading up apps and visuals, when they can just read what they needed to know.
For what it’s worth, they are doing that in limited areas. For example the Figma/Claude design controversy.
But you are right, building a business is a lot more than building a product. It’s also a lot more than just name recognition because they have no shortage of that either.
Because running 1 business is easier than running 100 businesses. It takes a lot more than writing good software for a company to be successful.
You can just restate the question then to say: If the models are so good, why can't they run a business?
What does "so good" mean? AI models are very good at doing [a set of things]. Autonomously running a large, complex business is not one of them.
This is just a form of "if you're so smart, why aren't you rich?", isn't it?
Because they want to be a platform for others to thrive. You make a lot more money when you are a successful platform than when you are a hundred successful products. That’s why Apple never made an iPhone for dentists.
Giving strong "if my grandmother had wheels she would have been a bike" vibes and I don't know why.
In addition to what everyone’s saying about platform economics, the other big advantage of selling tokens to everyone rather than competing with them directly is that they get to see everyone’s tokens (and, with consent, train on them)
Well they ARE.
Except they're called products - you don't open a new company for every new product you make.
And you don't make 100 - you focus the resources you have to try to build the most impactful things you can.
Starting a company is riskier than selling to companies who survived the “it’s hard to start a company” gauntlet.
Selling tokens in conjunction with a phone number or credit card yields signals for surveillance for intelligence agencies that can be tied to individuals. This keeps the firms relatively out of trouble with the federal government. This makes them too big to fail. Being subject to such surveillance is in fact is a strong reason for conscious individuals to seek to move away from them in the long term once the quality of competing AIs reaches a shared plateau.
They're doing the other thing too via numerous startup acquisitions.
reframed question - if their shovels are so good why dont they dig gold and sell gold themselves.
Gold is much more fungible than a business. 100 different businesses are much more unique than 100 different gold nuggets.
The counter-argument is that the models might make business ideas just as fungible as anything else.
I thought NVidia was the one selling shovels here, not OpenAI.
This fits, if NVidia fully believed in the LLMs/AGI future, why would they waste their super valuable GPUs by selling them? Why not just make your own LLM with the advantage of being one of the few major compute providers?
There's some kind of skill needed in an organization to make those llms. Openai and anthropic were able too. The other llm creators, not really. There's no guarantee that Nvidia would be another leader and not end up like meta or xai's attempt
Thats what they are doing, except with a unified model, not a seperate app for each one
First, two things can be true: the models can be amazingly good, and they can also be insufficient to run a company, at least now and maybe forever, because they are not "intelligent" in all the ways we are.
IMO the invention of AI is redefining what we think of as "intelligence". You would probably describe Albert Einstein as highly intelligent, and you'd probably also describe Bill Clinton as highly intelligent. Even before AI, you can easily look at that and see we aren't describing the same things even though we're using the same word. Einstein's intelligence is highly abstract, observational, mathematical. Clinton's is interpersonal, pursuasive, articulate, etc.
The AI we have today is extremely good at intellectual tasks like Einstein. It is not good at social intelligence and social agency like Clinton. Also, before you say that they can be really empathetic, persuasive, people are already socially dependent on them etc, that's not what I'm talking about. They are extremely knowledgeable about human socialising, but they cannot actually perform it. You could not set an AI out into the world to go and make a few friends.
I think the key moment will be if a single AI can get more than one person to care about what it has to say and what it's doing. Think about today how when someone tells you about their conversation with their AI agent, you probably roll your eyes because who cares, it's a highly individual experience.
Companies need a lot of this. They have to form relationships, become trusted amongst society, etc. AI cannot do this right now, and it's increasingly clear "intelligence" is not sufficient to do it, at least not in the way LLMs are intelligent. Maybe one day they will, but I'd imagine that will be another enormous leap in what AI even looks like akin to how ChatGPT was an enormous leap.
They wait and collect data from their future competitors first.
Better to sell spades than mine for gold...
Selling tokens is what scales best right now.
Why don't they simply run a quantitative hedge fund on the side?
I mean it sounds stupid but I think its a fair question if you can spend 15 million and solve a millennium prize problem, what happens if you take the same resources and just aim the cannon at making money?
Why would they try to run a real business when they can publish blogs about how spooky the product is and then live out the plot of the 1994 film Blank Check
During a gold rush, sell shovels. They are investing heavily in in-house custom silicon, which is the shovel end of things. They could open more jewellery chains, but that is a very different kind of operation and it is in their interest to let others compete for that and use their resources on the shovel side of things.
Why aren't they vibe coding millions of dollars of licensing costs away?
Why Even Anthropic Can’t Vibe-Code Away Salesforce
https://www.salesforceben.com/why-even-anthropic-cant-vibe-c...