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0 pointsonlyrealcuzzo1y ago0 comments

> Or approximately as good but cheaper.

You're fooling yourself if you think OpenAI is going to pass up implementing the same strategies to get a ~27x cheaper model.

> Unlike a social network, network effects won't help them - their users don't care how many other users they have, only about the AI output quality.

Google Search doesn't have a network effect. Everyone on HN has been saying Google Search is complete garbage for a decade. It still has the same market share (roughly) as it did a decade ago.

0 comments

like_any_other1y ago

> You're fooling yourself if you think OpenAI is going to pass up implementing the same strategies to get a ~27x cheaper model.

But that would mean a 27x lower valuation.

JumpCrisscross1y ago

> that would mean a 27x lower valuation

Not directly. The 27x is about costs. What it means is some order of magnitude of more competition. That reduces natural market share, price leverage and thus future profits.

onlyrealcuzzoOP1y ago

> But that would mean a 27x lower valuation.

No.

Valuations are based on future profits. Not future revenues.

You can theoretically lower your costs by 27x and end up with 2x more future profits - if you're actually 45x cheaper (which DeepSeek's method claims to be).

like_any_other1y ago

You mean charge a 27x lower price, but have 45x lower costs, so your profit margin has doubled?

Your relative margin may have doubled, but your absolute profit-per-item hasn't. Say you had a 10% margin before, at a $100 price and $90 cost, for a $10 profit-per-item. Reduce price 27x and cost 45x, so $3.7 price, $2 cost, and $1.7 profit-per-item. 6x less profit - not as bad as 27x, but not good if you're OpenAI.

onlyrealcuzzoOP1y ago

> Your relative margin may have doubled, but your absolute profit-per-item hasn't.

ChatGPT doesn't have any profits right now.

We have no idea what investors are expecting future profits to be.

> Say you had a 10% margin before, at a $100 price and $90 cost, for a $10 profit-per-item. Reduce price 27x and cost 45x, so $3.7 price, $2 cost, and $1.7 profit-per-item. 6x less profit - not as bad as 27x, but not good if you're OpenAI.

Now do the same thing but assume you have 10x more subscribers because the prices are ~27x lower.

You end up with almost 2x more total profit.

Just take ChatGPT's ~$200 subscription. Hardly anyone is going to pay ~$200 a month. Reduce that by 27x - and you're at $7.5 per month. Maybe 10% of people on the planet will pay that.

2 more replies

ceejayoz1y ago

> Valuations are based on future profits.

Which are estimated, in significant part, by the chance of a competitor arising.

If the barriers of entry are much lower than originally thought, the potential profit margin plummets.

rurp1y ago

Google spends immense amounts of resources every year to ensure that their search is almost always the default option. Defaults are extremely powerful in consumer tech.

digitalPhonix1y ago

> Google Search doesn't have a network effect. Everyone on HN has been saying Google Search is complete garbage for a decade. It still has the same market share (roughly) as it did a decade ago.

It absolutely does. People use Google for search -> Websites optimise for Google -> People get “better” results when searching with Google.

The fact that it’s market share is sticky and not responding quickly to change in quality is sort of indicative of the network effect.

gtirloni1y ago

Other search engines don't have a gigantic advertising budget or a dominant browser pounding on users' heads to use them.

j / k navigate · click thread line to collapse

0 comments

like_any_other1y ago

> You're fooling yourself if you think OpenAI is going to pass up implementing the same strategies to get a ~27x cheaper model.

But that would mean a 27x lower valuation.

JumpCrisscross1y ago

> that would mean a 27x lower valuation

Not directly. The 27x is about costs. What it means is some order of magnitude of more competition. That reduces natural market share, price leverage and thus future profits.

onlyrealcuzzoOP1y ago

> But that would mean a 27x lower valuation.

No.

Valuations are based on future profits. Not future revenues.

You can theoretically lower your costs by 27x and end up with 2x more future profits - if you're actually 45x cheaper (which DeepSeek's method claims to be).

like_any_other1y ago

You mean charge a 27x lower price, but have 45x lower costs, so your profit margin has doubled?

onlyrealcuzzoOP1y ago

> Your relative margin may have doubled, but your absolute profit-per-item hasn't.

ChatGPT doesn't have any profits right now.

We have no idea what investors are expecting future profits to be.

Now do the same thing but assume you have 10x more subscribers because the prices are ~27x lower.

You end up with almost 2x more total profit.

Just take ChatGPT's ~$200 subscription. Hardly anyone is going to pay ~$200 a month. Reduce that by 27x - and you're at $7.5 per month. Maybe 10% of people on the planet will pay that.

2 more replies

ceejayoz1y ago

> Valuations are based on future profits.

Which are estimated, in significant part, by the chance of a competitor arising.

If the barriers of entry are much lower than originally thought, the potential profit margin plummets.

rurp1y ago

Google spends immense amounts of resources every year to ensure that their search is almost always the default option. Defaults are extremely powerful in consumer tech.

digitalPhonix1y ago

> Google Search doesn't have a network effect. Everyone on HN has been saying Google Search is complete garbage for a decade. It still has the same market share (roughly) as it did a decade ago.

It absolutely does. People use Google for search -> Websites optimise for Google -> People get “better” results when searching with Google.

The fact that it’s market share is sticky and not responding quickly to change in quality is sort of indicative of the network effect.

gtirloni1y ago

Other search engines don't have a gigantic advertising budget or a dominant browser pounding on users' heads to use them.

j / k navigate · click thread line to collapse