> And there are reasons to even be really bullish about AI’s long-run profitability — most notably, the sheer scale of value that AI could create. Many higher-ups at AI companies expect AI systems to outcompete humans across virtually all economically valuable tasks. If you truly believe that in your heart of hearts, that means potentially capturing trillions of dollars from labor automation. The resulting revenue growth could dwarf development costs even with thin margins and short model lifespans.
We keep seeing estimates like this repeated by AI companies and such. There is something that really irks me with it though, which is that it assumes companies that are replacing labor with LLMs are willing to pay as much as (or at least a significant fraction of) the labor costs they are replacing.
In practice, I haven't seen that to be true anywhere. If Claude Code (for example) can replace 30% of a developers job, you would expect companies to be willing to pay tens of thousands of dollars per seat for it. Anecdotally at $WORK, we get nickel and dimed on dev tools (better for AI tools somewhat). I don't expect corporate to suddenly accept to pay Anthropic 50k$ per developer even if they can lay off 1/3 of us. Will anyone pay enough to realize the capture of "trillion dollar"?
You’re right, and a big reason they won’t be able to capture the “full” value is because of competition, especially with open-source models. Sure, Claude will probably always be better… but better to the tune of $50k/seat?
LLMs are, ultimately, software. And we’ve had plenty of advances in software. None of them are priced at the market value of the labor they save. That’s just not how the economics work.
> it assumes companies that are replacing labor with LLMs are willing to pay as much as (or at least a significant fraction of) the labor costs they are replacing.
And it’s worth reiterating that most (all) of these LLM/AI providers are currently operating at significant losses. If they aim to become even modestly profitable, prices will have to increase substantially.
Why do they have to charge employee tier prices? At the scale of job displacement they’re hoping for, a $2k/month per employee is better than even outsourcing overseas. And I think for a lot of jobs this is still profitable. Not every profession consumes the amount of tokens developers do hourly.
I think by the time people are willing to spend that kind of money we'd have to be in AGI territory and at that point any economic bets are off - investing in AI feels strange for that reason - I don't see a world where the slop becomes valuable enough to cover current investment levels. And I don't see a world in which investments matter if we get superhuman AGI.
We keep seeing estimates like this repeated by AI companies and such. There is something that really irks me with it though, which is that it assumes companies that are replacing labor with LLMs are willing to pay as much as (or at least a significant fraction of) the labor costs they are replacing.
In practice, I haven't seen that to be true anywhere. If Claude Code (for example) can replace 30% of a developers job, you would expect companies to be willing to pay tens of thousands of dollars per seat for it. Anecdotally at $WORK, we get nickel and dimed on dev tools (better for AI tools somewhat). I don't expect corporate to suddenly accept to pay Anthropic 50k$ per developer even if they can lay off 1/3 of us. Will anyone pay enough to realize the capture of "trillion dollar"?