The cost analysis here is solid, but it misses the latency and context window trade-offs that matter in practice. I've been running Qwen2.5-Coder locally for the past month and the real bottleneck isn't cost - it's the iteration speed. Claude's 200k context window with instant responses lets me paste entire codebases and get architectural advice. Local models with 32k context force me to be more surgical about what I include.

That said, the privacy argument is compelling for commercial projects. Running inference locally means no training data concerns, no rate limits during critical debugging sessions, and no dependency on external API uptime. We're building Prysm (analytics SaaS) and considered local models for our AI features, but the accuracy gap on complex multi-step reasoning was too large. We ended up with a hybrid: GPT-4o-mini for simple queries, GPT-4 for analysis, and potentially local models for PII-sensitive data processing.

The TCO calculation should also factor in GPU depreciation and electricity costs. A 4090 pulling 450W at $0.15/kWh for 8 hours/day is ~$200/year just in power, plus ~$1600 amortized over 3 years. That's $733/year before you even start inferencing. You need to be spending $61+/month on Claude to break even, and that's assuming local performance is equivalent.