Prof G Markets
00:27:50 · Misha Laskin
And when you're in the intelligence market, that's kind of like the market of artificial labor. And it's a very kind of positive sub market in the sense that how much artificial labor would I throw at really difficult problems like drug discovery or cyber defense? You'd probably throw as much as possible at it in order to get the best cyber defensive systems, in order to discover new drugs. Right? And what I think will continue happening is that compute for the foreseeable future... I mean, I don't know how long this... You know, how long that lasts, but for the foreseeable future, intelligence is gonna outpace our ability to stand up compute, because compute is you're standing up stuff in the physical world. And so the amount of intelligence you'll get per watt is gonna keep increasing. And so, you wanna drive intelligence, the cost of intelligence down as much as possible, so you can use it more. There's this classic Jevons paradox kind of thing. So, all this to say that intelligence should not be seen like a premium product, like an Apple iPhone or something. Intelligence is more like electricity and water, and it should be a commodity. The whole system around intelligence is expensive. They'll have some margin, but the margins today on inference are actually very healthy for both closed and open model inference.
00:29:26 · Ed Elson
[00:29:26] S2: On the inference though, because... And so I think the utility point is is is really interesting. And I think Sam Altman has said that he he thinks that there's a world where that might happen with with OpenAI. It doesn't seem to be what... The the direction that they're actually headed in terms of what they're pursuing as a business. But the idea of AI as a utility is really interesting and agreed on inference margins are are very healthy. But I do think that we're also, when we say that, leaving out the... This question of the training, which seems to be a very important and significant expense. But on utilities, generally speaking, are in some way subsidized by federal, state, local governments in order to make it accessible forever in electricity, water, etcetera. Do you see that as the world or the or the the AI economy where, you know, perhaps because training is very expensive, that there will be some level of subsidization similar to what we see with utilities?
00:30:34 · Misha Laskin
[00:30:34] S4: Perhaps in some future. I think right now the market is kind of too early to tell, right? Because I guess what I'm describing is kind of the desirable end state for AI, is that it's a utility, and Internet. The Internet is effectively a utility. It's a commodity that is affordable to most people, and there are a lot of projects in terms of how do you get Wi Fi to work in rural areas as well. So it's unclear to me whether AI goes down the path of electricity, or it goes down the path of the internet. But nonetheless, whether one is government subsidized or not, both are sort of seen as large scale commodity services, and a lot of very successful high margin companies are built on top of them. A lot of companies with high margins are built on top of of the Internet, even though, you know, access to an Internet in its in its own right is fairly affordable.
00:31:46 · Ed Elson
[00:31:46] S2: So the the Chinese open models are so interesting because deep sea comes along, and... I mean, we all remember what happened in the market. Suddenly, everyone panics, and and you see all of the the AI... US AI stocks going down. But it seems like the... What happened... What is happening in China, which is why you have emerged as this strategically important company for The US, and correct me if I'm wrong on this, but it seems as though China is using vast amounts of government subsidies to create these models, which they then distribute to the world for free, thus changing the entire complexion of the AI model market, bringing down prices significantly. But ultimately, from my understanding, the government... The the CCP seems to be paying for it, at least when it comes to deep seek. I mean, it it seems like that is that is what is happening here. But is that wrong? I mean, to what extent is is is Chinese government involved in funding and promoting these open models?
00:32:58 · Misha Laskin, Ed Elson
[00:32:58] S4: I probably don't know, you know, much more than, you know, you do on the subject of the CCP's involvement, but I would agree with you that it's very hard to explain the Chinese open model ecosystem without deep support from the government in some way. Right? It's just hard to explain. These companies were around for actually some time. It took a few years for them to get to the point where they actually started charging meaningful money for their products. And even so, you're right, there's a large investment that needs to be put into it. I think there's a big difference between China, the business models that these companies have in China versus Western labs and distributors. In China, it kind of... I mean, from the outside looking in, it looks in a sense like a captive market in the sense that while there are open models, you know, in China, I don't really see too many distributors of those open models in China outside of the companies that are building them. Right? Like, DeepSeek has their API, and Kimi has their API, and, you know, GLM or Zhipu ZAI have have their API. And it seems to me, again, from the outside looking in, that they are actually... Their business models are not dissimilar from closed models in the West, but in China. Right? But in domestic market in China. [00:34:26] S2: To clarify, you're saying that they operate as closed models within China, but outside of China, they're open? Is that what you mean?
00:34:34 · Misha Laskin
[00:34:34] S4: At least that is my perception from the outside looking in, because I'm not seeing distributors popping up in China that are serving DeepSeek, outside of DeepSeek, for example. So something is interesting in the market structure there, where because I think that there isn't much trust in consuming from Chinese APIs in the West. And so for that... But China is a big market. And so I suspect that the way in which their businesses operate within China is not too dissimilar from a closed API effectively. And then you kind of give away the model for free abroad, well, because you can't really monetize it anyways, because people abroad don't really wanna use the Chinese API. And I do think it has geopolitical advantages, and as a sort of... One could think about it as a sort of economic incentive to drive down the margins of your competitors abroad. There's kind of something interesting happening there. In the West, it's similar, but different in a sense that it's a competitive market. When you release an open model, there's an ecosystem of distributors that can basically go and serve that model. But you do get a few kind of advantages in Open Model Builder that we're seeing come to fruition. One is that by building the model, you've also built frontier state of the art kind of stack for serving the model, for building agents around it, fine tuning, and so forth, and you are kind of like six months ahead of your competition in terms of your technology development, because by the time your model is released, the technology for supporting it was actually built out well in advance. So you have a technological lead. And the other thing that you have is because you are a strategic company to the nation and to the West, is the trust that it builds with enterprises, public sector, sovereign entities is very high as well. And fundamentally, where we see the markets for consumption of open models, the biggest markets for consuming them are going to be in enterprise, like the big banks, public sector, sovereign entities, and those, like the sell there, like selling to a startup might be a very technical sale, hey, just go pick out my product, and try it.