The Information's TITV
00:17:13 · Stephanie Palazzolo
[00:17:13] S3: So there are two dynamics going on here, which, me and my colleagues have kind of heard about just from chatting with a lot of these really large, customers. But essentially the first one is that, customers, you know, we, we kind of live in this age right now where it feels like every other week there are new models coming out that are leapfrogging each other when it comes to really pushing the front, the frontier of performance. And so customers want to have that flexibility to be able to switch model providers whenever they want, just depending on whatever the best model is that's out there today. Especially because now switching models has actually become easier over time. We recently wrote a story where Replit was basically able to switch its entire product from Anthropic to OpenAI models with just a couple lines of code, you know, that took like a couple hours to push through its entire product. So that's the first reason. The second reason is actually something that the labs are doing themselves, which might be hurting, usage of their most advanced models, which is that, companies like Anthropic and OpenAI are releasing cheaper, faster, like quote unquote good enough models. So for OpenAI, these are models like Terra and Luna, and then Anthropic has its, Haiku model. And so especially as the models are getting better and better, these cheaper models are becoming good enough that they can, you know, do most things that customers want them to do. So it becomes very easy for customers to switch, you know, use cases from the most expensive advanced models to cheaper ones that the model developers themselves are offering as, you know, more cost... More... Or more cost effective alternatives.
00:18:55 · Akash Pasricha, Stephanie Palazzolo
[00:18:55] S0: So, like, are the model companies completely cooked then? Like, what's, what's, what are you predicting here? [00:19:02] S3: Well, it's not clear. I would say this is definitely not a death sentence for them. I think there has been this theory throughout the AI boom that actually as models get cheaper, people want to use more of them. Because the models are getting better, people are wanting to use more of them. Actually, maybe overall spending will increase over time. But I will say though that, you know, a lot of companies that I talk to, they are just, just very nervous about, you know, every year they basically have to commit to spending a certain amount with OpenAI and Anthropic. So even if they know that their overall AI spending is going to increase over the next year, they don't know exactly that it's going to increase more on OpenAI or more on Anthropic specifically, or whether that new spending will come from open source or from a third model provider, for instance. So it's just been very difficult, I think, these customers to be able to commit right now to spending, you know, whatever 25 or 50% more on OpenAI for instance, over the next year. That's just been a really tough uphill battle, I think, for the salespeople at the model developers to have to go up against. [00:20:14] S0: Now, on the other hand, you did say that companies operating routers like OpenRouter, they've had a very easy job of getting people to renew their contract sounds like.
00:20:14 · Akash Pasricha, Stephanie Palazzolo
[00:20:14] S0: Now, on the other hand, you did say that companies operating routers like OpenRouter, they've had a very easy job of getting people to renew their contract sounds like. [00:20:26] S3: Yeah. So we've really seen revenue at some of these other companies like OpenRouter explode over the past couple months, or even companies like Snowflake, where essentially they kind of act as like a central hub for a bunch of different models. So, you know, even with like Amazon Web Services, for instance, they have a product where you can go to that and then, spend across different models from both OpenAI and Anthropic. And so like what these kind of platforms offer is, you know, more flexibility and the ability to switch between different model providers very easily. And so this might push more customers towards these kind of like independent, like third party platforms versus buying directly from a model developer where they need to commit upfront to spending, you know, X, Y, Z amount over the next year on their models only.
00:20:26 · Stephanie Palazzolo, Akash Pasricha
[00:20:26] S3: Yeah. So we've really seen revenue at some of these other companies like OpenRouter explode over the past couple months, or even companies like Snowflake, where essentially they kind of act as like a central hub for a bunch of different models. So, you know, even with like Amazon Web Services, for instance, they have a product where you can go to that and then, spend across different models from both OpenAI and Anthropic. And so like what these kind of platforms offer is, you know, more flexibility and the ability to switch between different model providers very easily. And so this might push more customers towards these kind of like independent, like third party platforms versus buying directly from a model developer where they need to commit upfront to spending, you know, X, Y, Z amount over the next year on their models only. [00:21:17] S0: Right. Or they move very much into the application layer, which we've talked about you and I on the show before. I mean, as the models get commoditized, the stickiness might come from the user experience of an application or being able to do things for people, not just do the back end of things, which could very much be where this story goes. I do want to ask you, so we had some news last week. OpenAI is reported to have decreased the size of their funding round to $20,000,000,000 from $30,000,000,000 This is the private funding round that they wanted to raise. Is the story here, Steph, just that they can't raise the money? Do we know anything about the state of their business? What do you think this is?
00:22:09 · Stephanie Palazzolo, Akash Pasricha
[00:22:09] S3: Yeah. So it is unclear what is kind of going on behind the scenes. I will say that not being able to raise the full amount that you went out to raise is never really a good sign. You know, like I think in an ideal world, in an ideal world, you would want the round to be oversubscribed so that you have too many investors actually like trying to get in. I do think like a major dynamic that's going on here is that, you know, Anthropic is, about to go public. It's, you know, releasing its financials in its S1. It's putting its numbers out there. And to be honest, those numbers are really, really good, not just revenue growth, but also margins as well. I think a lot of people were very pleasantly surprised at the Anthropic numbers from last week and just how efficient they have been able to be with running and training these driving models. And, you know, we, we don't know the exact figures for OpenAI, but if they are not as good as Anthropic's, even if they are, you know, objectively pretty, pretty good, that's definitely gonna put a bit of a damper on the round and make it a very easy comparison for people to look at OpenAI's numbers and then look at these literally public figures from Anthropic and kind of do the apples to apples comparison. [00:23:20] S0: Right. And they'd get liquidity faster too because you could buy some Anthropic and it'll go public. Whatever it is, six month delay, even lockup will expire a lot quicker. In a world where everyone's talking about bubbles, it's easier to get your money out faster.
00:23:20 · Akash Pasricha, Stephanie Palazzolo
[00:23:20] S0: Right. And they'd get liquidity faster too because you could buy some Anthropic and it'll go public. Whatever it is, six month delay, even lockup will expire a lot quicker. In a world where everyone's talking about bubbles, it's easier to get your money out faster. [00:23:37] S3: Right now is a very high risk time to invest in OpenAI, right? This is probably going to be the last round before it goes public. So you have kind of limited upside because you don't really expect there to be like a massive valuation jump between, you know, the pre IPO round and the company going public. If Anthropic's numbers are better, then there's a good chance that the OpenAI IPO may not be this huge blockbuster event that will make people tons and tons of money and a huge return on their investment if they got in at whatever, you know, 1,200,000,000,000 price or whatever the most recent round is. So I think it's, it's a very high risk situation. And I think a lot of investors are just trying to play it safe right now and maybe not invest in this round. [00:24:25] S0: Right. Speaking of Anthropic stuff, so we got Anthropic's amended S1 out this morning. Did you get a chance to look at it? What should we be paying attention to here?