The Subprime AI Crisis - Ed Zitron \ stacker news ~tech

Ed is a bit verbose for me but a friend of mine sent me his blog and I shared his latest article today. He seems to get what is going on in the tech world and where AI is heading in a business sense. As someone that has been in the tech world for the last 20 years there are not enough people looking at the hype in the way Ed does.

I know I know. Bob, you're just an old. You're just dumb. Sure. Those things may be true but I've seen hype before and I've seen crashes before. The AI hype is not all smoke but it sure isn't what we are being told.

From Ed:

Generative AI is being sold on multiple lies:

That it's artificial intelligence.
That it's "going to get better."
That it will become artificial intelligence.
That it is inevitable.

My concern is that I believe we’re in the midst of a subprime AI crisis, where thousands of companies have integrated generative AI at prices that are far from stable, and even further from profitable.

Here is the key point:

Almost every "AI-powered" startup that uses LLM features is based on some combination of GPT or Claude. These models are built by two companies that are deeply unprofitable (Anthropic is on course to lose $2.7 billion this year), and that have pricing designed to get more customers rather than make any kind of profit. OpenAI, as mentioned, is subsidized by Microsoft — both in the "cloud credits" it received and the preferential pricing Microsoft offers — and its pricing is entirely dependent on Microsoft's continued support, both as an investor and a services provider, a problem that Anthropic faces with its deals with Amazon and Google.

This affects more than JUST these companies that are using "AI" in their products.

And what we really don’t know is how unprofitable generative AI is for the hyper-scalers, because they bake those costs into other parts of their earnings. While we can’t know for sure, I imagine if this stuff was in any way profitable, they’d be talking about the revenue they were receiving from it.

They’re not.

He explains why this is happening

So, why does this keep happening? Why have we had movement after movement — cryptocurrency, the metaverse, and now generative AI — that doesn’t seem like it was actually made for a real person?

Well, it’s the natural result of a tech industry that’s become entirely focused on making each customer more valuable rather than providing more value to the customer. Or, for that matter, actually understand who their customers are and what they need.

I'm still thinking about this article but I can see his points.

Here we have an example of tech not providing value to the customer but rather trying to suck people into the existing systems. Its why so many of us despise these companies.

The products you’re being sold today almost certainly try to wed you to a particular ecosystem — one owned by Microsoft, Apple, Amazon or Google, as a consumer at least — and, in turn, increase the burden of leaving said ecosystem. Even cryptocurrency — ostensibly a “decentralized” technology — quickly abandoned its free-wheeling libertarian ideas and sought to consolidate users on one of a few big platforms like Coinbase, OpenSea, Blur or Uniswap, all backed by the same venture capital firms (like Andreessen Horowitz). Rather than being flag bearers for a new, radically independent online economic system, they were all only able to scale through the funds and connections of the same people that funded every other recent era of the internet.

136 sats \ 2 replies \ @Satosora 1h

I always felt that the ai was so underpowered. Seems like more machine learning that anything else. I could be wrong, though.

20 sats \ 1 reply \ @kepford OP 1h

AI is a bad name. Creates a false idea of what it is and how it works IMO.

0 sats \ 0 replies \ @Satosora 59m

Yes. I thought it would be able to go through all the data on the internet and tell me information that would have been harder to get. I usually just get the first easy result. Its pretty useless.

40 sats \ 1 reply \ @SimpleStacker 1h

Ok, but that doesn't mean that Generative AI (and the associated technologies, like embeddings and transformer models) aren't going to revolutionize business. It just means that they're providing them at a loss to capture you into their ecosystem. Eventually, it will enshittify, but for now I think the AI ecosystem is amazingly affordable for what it offers.

22 sats \ 0 replies \ @kepford OP 50m

I think the point, over all point is that SaaS business models are returning diminishing profits and many companies are betting the house on AI to make their businesses profitable. But what happens when the cheap/free AI these things are using gets repriced? A sudden rise in cost.

I mean, I can see the logic behind what he's writing. He's not saying AI isn't affordable for users and businesses. He's saying it is being propped up and a lot of weight is being placed on it. Weight that might collapse in a drastic weight when the true cost of these tools is revealed.

That's the subprime analogy. Tech has long been subject to these things. Venture funding is inherently risky. But a large number of SaaS businesses have bought into it.

We will see. I see value in the tools and they will and are revolutionizing tech. But we don't see the cost tradeoffs yet. That will impact their application. I think the idea of investors is that the costs can be reduced over time. But, will the funding supporting all these AIs last long enough. That's the question I have.

0 sats \ 0 replies \ @kepford OP 4h

He's dead right about "crypto". The silicon valley bros have little desire to decentralize. Incentive wise that is in opposition to their money making endeavors. Satoshi and Hal Finney were crypto anarchists that had libertarian ideals about economics, money, and forging your own way. Not really what the big tech founders are about. Making crazy easy fiat money off of eye balls.