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Comment by SamBam | Hacker News Reader

> If the proprietary models stop moving forward, the open source ones will quickly close the gap.

This is the Red Queen hypothesis in evolution. You have to keep running faster just to stay in place.

On it's face, this does seem like a sound argument that all the $$ following LLMs is irrational:

1. No matter how many billions you pour into your model, you're only ever, say, six months away from a competitor building a model that's just about as good. And so you already know you're going to need to spend an increased number of billions next year.

2. Like the gambler who tries to beat the house by doubling his bet each time, at some point there must be a number where that many billions is considered irrational by everybody.

3. Therefore it seems irrational to start putting in even the fewer billions of dollars now, knowing the above two points.

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> it seems irrational to start putting in even the fewer billions of dollars now, knowing the above two points

This doesn’t follow. One, there are cash flows you can extract in the interim—standing in place is potentially lucrative.

And two, we don’t know if the curve continues until infinity or asymptotes. If it asymptotes, being the first at the asymptote means owning a profitable market. If it doesn’t, you’re going to get AGI.

Side note: bought but haven’t yet read The Red Queen. Believe it was a comment of yours that lead me to it.

Why would being the first at the (horizontal) asymptote mean owning a profitable market? In six months, somebody else is at the asymptote as well. If different models are mostly interchangable quality-wise, then the decision will mostly be made on price.

For a market to be both winner-take-all as well as lucrative, you need some kind of a feedback cycle from network effets, economies of scale, or maybe even really brutal lock-in. For example, for operating systems applications provide a network effect -- more apps means an OS will do better, a higher install base for an OS means it'll attract more apps. For social networks it's users.

One could imagine this being the case for LLMs; e.g. that LLMs with a lot of users can improve faster. But if the asymptote has been reached, then by definition there's no more improvement to be had, and none of this matters.

> In six months, somebody else is at the asymptote as well

But you were there first. That gives you all of a first mover’s advantages plus the profits from that period to set the terms of the market sharing.

None of this requires winner-takes-all economics. And given OpenAI’s revenues, it’s unclear they need to be the sole winner to make an investment thesis work.

The first mover advantage isn't as big an advantage as being the one to monopolize a commodity. While there are some historical advantages to first mover's doing this, it is the common case. I also think that is very nearly a winner take all sort of thing, or at least a very API providers will still matters, if this asymptotes.

Compare this to toilet paper or fuel, if AI asymptotes and everyone catches up in 6 months it will be be just like these. There are some minor differences in quality, but if a customer can buy something good enough to keep their ass clean or their car powered then they will tend to pick the cheapest option.

Sometimes it is subterfuge like ms stealing the OS market from IBM or there might be a state sponsored AI lab like so many state run industries pushing out competition, but there are a ton of ways to beat first movers.

If there is no niche, first-mover is useless. But if there is value to be had, it’s valuable. Fighting to tread water in a moving stream with the expectation the flow will slow isn’t irrational.

Are you claiming there is no Niche to making commodities? I haven't really considered it I could see an argument being made either way. Or are you saying that it's a product these API based llms are just not going to be how we use these tools? Or are you saying something else entirely?

Ok, so let's say I was there first. But now you're offering a product that's (by definition) just as good for a lower price. Why will the users stick to my product rather than paying your cheaper prices?

As for your second point, the profits from the first six months are going to be basically nothing compared to the years of massive investments needed to make this happen. Why would those profits give any kind of sustainable leverage?

Excellent point, but now consider the availability of open source models as well. They’re not as good as the frontier models, but at some point they get close enough, right?

I run Llama 3.x locally on my 5+ year old GPU. It’s pretty decent. It’s not as smart as GPT-4 or Claude, but it’s good enough for a lot of what I do, and most importantly there’s no cap on the number of prompts I can send in a given timeframe.

For many consumers, it’s fine to be a little bit behind the cutting edge. My smartphone is 2 models behind now. It’s fast enough, the camera is good enough, and the battery is holding up just fine. I don’t feel any need to fork over $1,000 for a new one right now.

I think the same phenomenon will become more common for AI enthusiasts. It’s hard to beat free.

And what happens to the economics of building frontier models then? I suspect a lot of air is going to be released from the AI bubble in the next couple of years.

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