Ed Zitron on AI companies having deceived users w/subsidized rates they can't afford: There's no way to right this ship

[highplainsdem]

DUer erronis posted about this a couple of days ago - https://www.democraticunderground.com/100221137092 - but it didn't get the attention it deserved then.

Ed's newsletter:

The Subprime AI Crisis Is Here
https://www.wheresyoured.at/the-subprime-ai-crisis-is-here/

Anthropic and OpenAI are in particular trouble. With one of the clearest signs Anthropic throttling Claude usage recently: https://www.democraticunderground.com/100221129029

This entire very long newsletter from Ed is well worth reading, including for the first section about subprime mortgages....but if you want to skip that and get to the start of the section specifically on AI, search Ed's text for the word deceitfully.

I want to quote from part of this section near the end:

-snip-

Anthropic and OpenAI (and Other AI Startups) Have Trained Their Users To Use Their Unsustainable Products In Unsustainable Ways, And Their Users Are Intolerant of Rate Limits and Price Increases

-snip-

To be clear, no AI company should have ever sold a monthly subscription, as there was never a point at which the economics made sense. Yet had these companies actually charged their real costs, nobody would have bothered with AI, because even with these highly-subsidized subscriptions, AI still hasn’t delivered meaningful productivity benefits, other than a legion of people who email me saying “it’s changed my life as a programmer!” without explaining to me what that means or why it matters or what the actual result is at the end.

-snip-

The very foundation of every AI startup is economically broken. The majority of them sell some sort of “deep research” report feature that costs several dollars to generate at a time, and many sell some form of expensive coding or “computer use” product, tool-based web search features, and many other products that exist to keep a user engaged while burning tokens, all without explaining to the user “yeah, we’re spending way more than we make off of you, this is an introductory rate.”

This intentional, blatant and industry-wide deception set the terms for the Subprime AI Crisis. By selling AI services at $20 or $50 or even $200-a-month, AI startups and labs created the terms for their own destruction, with users trained for years to expect relatively unlimited access sold at a flat rate for a service powered by Large Language Models that burn tokens at arbitrary rates based on their inference of the user’s prompt, making costs near-impossible to moderate.

-snip-

I’m going to be as blunt as possible: every bit of AI demand — and barely $65 billion of it existed in 2025 — that exists only exists due to subsidies, and if these companies were to charge a sustainable rate, said demand would evaporate.

-snip-

"There is no righting this ship" - Ed's words that I quoted in the thread title start the paragraph immediately following the one above. No price charged to customers to eliminate these losses will be acceptable to those customers. There's no technological breakthrough coming in the near future that will reduce costs drastically.

It's a dishonest, unsustainable industry.

Zitron says the end of the AI bubble won't be as bad as the financial crisis of 2008. It "would be cataclysmic to venture capitalists, bring about the end of the hypergrowth era for the Magnificent Seven, and may very well kill Oracle" but that's still not as bad as 2008 was.

But there's going to be a reckoning, which the AI industry brought on itself.

[RockRaven]

1. If you like your news/commentary in audio, Ed Zitron also has a podcast, "Better Offline"

[highplainsdem]

3. Thanks! There's also an r/BetterOffline subreddit where Ed posts as ezitron.

https://www.reddit.com/r/BetterOffline/

[BlueNProud]

2. Much love to Ed!

[highplainsdem]

4. He's been doing brilliant analysis of the AI industry.

[BlueNProud]

6. Yes indeed

[EdmondDantes_]

5. That's kind of the standard business practice now

Run at a loss on venture capital, corner the market, raise prices or get bought. Uber/Lyft, Netflix, LinkedIn etc.

Blitzscaling. Not only is it a poor form to name things after nazis, the tactic didn't win the war.

The allure of billions for founders at start ups is strong and with enough equity, even if the business fails, you can hit it big. See Adam Neumann.

[highplainsdem]

11. It's the extent to which they're running at a loss that's anything but standard. Most users now pay $20 or

less per month, when the companies lose money with $200/mo subscriptions. It's been over a year already since the CEOs of both OpenAI and Perplexity AI were talking about possible $1,000/mo subscriptions. Altman talking about it had made news, but I didn't see an exact quote or context. I did see a tweet from Srinivas wondering aloud about what AI could give consumers to make them think $1,000/mo would be considered a good deal. I didn't bother looking to see what sort of answers he got, or if there was more discussion of that online. I saw his tweet only because someone I follow had commented. But I remember thinking at the time that he would need users to be really addicted to AI for them to be fine paying $1,000/month for it.

And then Perplexity suddenly, several weeks ago, throttled its $200/year subscription tier to the point where users would have to switch to the $200/month subscription tier to get comparable AI usage.

See the second part of the OP here, the part about Perplexity:

https://www.democraticunderground.com/100221039651

I don't know if they've since had to relent and give users more for that $200/year subscription. But the fact Srinivas even tried to throttle usage that much shows how desperate he's getting about the gap between what customers are paying and what those customers are costing Perplexity.

[newdeal2]

12. Yup get them hooked at a cheap price

Then raise it down the road when there's no competition.

I remember the "good old days" of cheap Ubers and Netflix. It was all subsidized by VC and ZIRP.

[highplainsdem]

17. True. But as I said above, we've probably never seen this great a disparity between what customers

are paying and what the companies are losing because of those customers.

[newdeal2]

19. Hard for me to say because I wonder about enterprise customers

All CEOs at big corporations are pushing AI on their employees and spending big bucks on thousands of licenses each that may or not be being used to their full potential. Maybe they are subsidizing AI companies by underutilizing what they're buying?

[hunter]

7. They'll make a quick pivot to mass government surveillance...

... and our tax dollars will keep the data centers humming.

Big Brother will be omnipresent, continuously manipulating society in subtle and not-so-subtle ways.

That's another good reason to oppose the financing and construction of these giant data centers.

[highplainsdem]

13. I hope they won't get enough from the government to make up for their losses with all other

customers.

But you're absolutely right that they'll cooperate with government surveillance, and the more data you give them, even in apparently casual chatbot chats, the more they'll keep tabs on both you and every single person they can link to you.

[WSHazel]

8. Really interesting

Thank you for sharing. Any other articles about the unit economics out there?

[highplainsdem]

14. I'm sure there are, but I can't make any recommendations offhand. Ed does link to lots of sources,

so his writings would probably be the best place to start to find more information, reliable information.

[David__77]

9. I'm pretty sure Chinese AI will be better and more affordable.

[highplainsdem]

15. Still with the same illegal-training problem, though, and another surveillance worry.

[MineralMan]

10. Makes perfect sense to me.

The amount of money and energy being invested in AI is staggering. The benefits, however, are far less clear.

I think there is going to be a huge fallout in the AI industry before very long. That is not to say that AI won't eventually be something that has a high value, but the time for that is in the future somewhere.

Right now, it simply does not warrant the investment in huge data farms. It smacks to me of "mining" crypto currency. Nothing of value is actually being dug up with crypto. It's all in the imagination. Same thing with AI. It might make some intellectual effort more efficient, but so far the results are weak or even completely erroneous.

So, I can't imagine investing in that technology, much less doing so massively.

A correction is in order, I'm pretty sure.

[highplainsdem]

16. Thanks! I hope the correction happens soon, so investment money and valuable expertise will go to

areas more important than generative AI. And so there will be a lot less disruption to society than we'll have if people keep buying into the AI hype.

[MineralMan]

18. Agreed!