Prof G Markets
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.
00:37:16 · Misha Laskin, Ed Elson, S3
Selling to those entities is like, yes, you have to win on the technical stuff, and you have to show really strong technical differentiation, but you also, right, they're looking at you as, are you gonna be the strategic partner that helps me transform my organization with open models? And the open model builders have a lot of kind of trust from that perspective as being the right kind of strategic partner to transform the enterprise. [00:37:50] S2: We'll be right back. [00:38:00] S3: Support for the show comes from Engine. When 1,600,000,000,000 moves through travel every year, it's a shock to remember that most of it still runs on tech from the eighties. I mean, work travel works fine, but it certainly isn't all that intelligent. That's why businesses and travelers book directly through Engine. Engine closes the gap between wanting to be somewhere and actually being there. Developers, expense tools, and AI agents all plug into Engine's API. And as AI spreads, Engine only becomes more valuable. Every AI agent that wants to book travel needs real supply, real pricing, and real payments. With 40,000 businesses relying on Engine and growing fast, they're powering travel for the masses with partnerships like Nivon and the Tampa Bay Buccaneers. Strong hotel partnerships, proprietary supply, real time rate shopping, and payment rails. That's the kind of foundation that takes years to build, eight years in Engine's case, and it can't be bought. The future of business travel runs on Engine. Visit engine.com/propg.
00:39:06 · Ed Elson
[00:39:06] S2: We're back with Misha Laskin. You mentioned that that there might be some sort of geopolitical strategy in Chinese... In the Chinese open models. And that seems... I mean, if it's the case that that the ecosystem is somewhat closed in China and then not closed outside of China. That I think fully aligns with what I think we are in agreement on, which is that it seems like the open... The the proliferation of the Chinese open weight models, which they have really doubled down on and and they've invested significant resources into was partly, actually, I think almost entirely a mission to, as you say, erode the margins of the existing AI businesses in America and upend the AI market. My co host on Prof G Markets, Scott Galloway, calls it AI dumping. And basically, the China goes in, they say, we're gonna we're gonna inject a huge amount of supply into the into the economy, and that's going to kinda screw up the businesses that have really gotten ahead in America. And that seems that seems to be true. At least that's what I think is going on. So I guess the question is, you know, your company Reflection is seen as the response to that. You've had significant investment from some of the most important firms in the world from NVIDIA as well. And Jensen Huang has has specifically stated his support for open models. He thinks it's really important. You've also, provided, sold your model to, government infrastructure groups. I believe the Pentagon is using Reflections models. There is this idea that reflection is going to be America's response to China. My question, how will this get back at China? Like, how will this change the market and put America in front again? What is strategically important about Reflection given things go right?
00:41:17 · Misha Laskin, Ed Elson
[00:41:17] S4: First, I actually disagree with the, you know, premise of AI dumping, and it's somehow being negative for the Western markets. [00:41:27] S2: Think Yeah, I kind of agree as well. I'm sort of framing it.
00:41:30 · Misha Laskin
[00:41:30] S4: Yeah. The fact that there are great open models out there, period, doesn't matter where they come from, is a gift to us all. So the fact that this happened in China or wherever, but it happened in China, and there are great open models in the world that people can build on is a gift. So they gave us a gift. It's whatever their intentions were, they gave us a gift. And how do we see that? Our best startups that started kind of getting tall poppied by some of the closed labs, and again, it's not anything bad or negative at closed labs, it's more that they have businesses to build. So of course, if coding is very lucrative, they're gonna go build a vertical product around it. Why not? They have to build businesses. But you want a competitive ecosystems where the startups that are also building coding agents can build businesses too. And what did those startups do? Well, they actually started moving to Chinese open models, building on top of them, customizing them for their workloads, and standing up on their own two feet. So this is a gift that China gave to actually American startups. And if you were to take away open source models altogether because of some geopolitical worries, it would actually hurt the American innovation ecosystem. So I think the first thing we have to think about is that actually, this is kind of from a builder developer innovation perspective, these things are gifts, and it's great. We could be in a world where there was no good open models, and that'd be a much more worrisome, darker world to be in. Yeah. And the other thing is that, again, AI is one of those... It's not kind of a fixed pie zero something. When you drive the cost of something, in this instance, the demand goes up. It's a sort of Jevons paradox sort of thing. So, when you take AI, so far, every time you've kind of driven down the costs, the demand has gone up for them, for these intelligent systems. And right now, obviously, enterprise is trying to get very cost conscious, not because, look, an enterprise would happily put in billions of dollars into AI if it yielded some multiple of that in value back to them. But it just takes some time for that to manifest, and it is the case that to date AI has been quite expensive. So, I think that on the first point, that the existence of great open models is a net positive.