Comment by mjburgess | Hacker News Reader

Comment by mjburgess | Hacker News Reader

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This is quite a subtle and powerful analysis of the economic role of AI that seems to have been misunderstood in this thread.

The claim is: AI is not a profitable space to compete in.

Why? 1) Most of the gains are distributed at zero-cost: academic innovation in a model is available to everyone. 2) Zero-cost gains are extremely hard to extract: Business-useful data requires large corps to do massive enterprise change projects to provide it. 3) Profit will lie in between these and incumbents are already the best placed: adding AI to business data systems and apps is best done by the providers which already own/operate those systems.

The intuition here seems sound: AI is not the kind of technology which creates competitive advantages. It apparently does so very early in a business' use of it, but it actually lowers the barrier to competition dramatically. Whatever AI company seems "ahead" now, for the above reasons, it is quite trivial to create a competitor.

I think one could further generalize your argument: the very economic role of all algorithms is misunderstood in this thread.

Maybe if we consider a less loaded class of algorithms e.g., pagerank this would help along the discussion. The adtech business model had little to do with the details of the underlying algos. Technical aspects of search algorithms may have been a catalyst that selected one of the many providers but it took completely unrelated circumstances (market structures, political and regulatory attitudes) to enable and sustain the new economic reality that ensued.

There are many older precedents that point to the very complex relationship of "algorithms" with economic value. Think e.g. trading algorithms or credit scoring or insurance models. The idea that some supergenious geek will develop an approach and "beat the market" is a recurring theme but the reality of applying algorithms to human affairs shows none of that comes to pass.

Interesting point. I wonder if the internet would be an interesting analogy. E.g. during the dot-com bubble, Cisco's stock price rose massively, then crashed -- as I understand, because it wasn't actually well-positioned to profit from the rise of the internet. It's only 20 years later that Cisco stock even approaches its bubble price.

>quite trivial to create a competitor.

I dont get it though, if its that easy why is there no meaningful alternative to openai now? or are you arguing that that will happen later on once its (even more) established?

OpenAI haven't invented anything with a "competitive moat" right?

They've created a product which uses ideas and data that are largely available to everyone. It's not a pharmaceutical-drug type invention.

If they hadnt been bought my MS, their revenues were going to be in the $20/mo subscriptions. And you'd quickly find a lot of people offering $5/mo for 80% of the quality which would be "just fine" for many cases. (Eg., consider copilot).

The valuation of OpenAI is because it was clear a player like MS would buy it, since the marginal economic value of that technology is to a large incumbent who can quickly deploy it "in the places it's needed". It's that ability to deliver "when needed" which enables MS to draw value from it: ie., MS is just capitalising on it's current position with customers.

The AI bit is actually providing a trivial amount of profit over-and-above MS's existing position with customers.

Isn't there a pretty big cost in training these LLMs?

One that prevents you from competing, but not most larger tech companies.

If you think if it like any other product, the picture is clearer.

A startup invents a widget whose production costs are somewhat high, but there's no patents/etc. So all major players could invent their own. Where's the value? Just in the sale to a major player.

I hear you. What do you think of the time/expertise/tooling it takes to train these models (and that's it's an iterative process and openai has a significant head start). This strikes me as more than a 'first to the gate' advantage (but perhaps less than a traditional moat).

> why is there no meaningful alternative to openai now

Alternative to do what, exactly?

Were people asking each other "why is there no meaningful alternative to tulip bulbs?" early in the year 1637...??

Can't help thinking that the people getting rich off gold rushes are often the ones selling shovels...

That isn’t quite fair. Tulip mania was a bubble because it was a greater fool scheme. The only purpose of the commodity was to sell it to a “greater fool” at some time in the future. This is analogous to the crypto bubbles that happen every few years.

OpenAI has created actual products which have some value. Dall-E is useful to people for what it is. Codex has limitations but some people find it useful. GPT3 and ChatGPT are definitely not general purpose problem solvers but for the people who use them they have value.

> OpenAI has created actual products which have some value

Value? One headline from last summer was "OpenAI announces pricing for DALL-E 2: AI images are almost free"[0].

[0] https://the-decoder.com/openai-announces-pricing-for-dall-e-...

Seems to be on its way: https://laion.ai/

> why is there no meaningful alternative to openai now

Is GPT that far ahead of other LLMs?

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