It’s the business of commodities. The magic is in tiny incremental improvements and distribution. DeepSeek forces us to question if AI—possibly intelligence—is a commodity.
No, but it's good enough to replace some office jobs. Which forces us to ask, to what degree is intelligence--unique intelligence--required for useful production? (We can ask the same about physical strength.)
My partner is in law, along with several friends and the amount of completely _useless_ work and ceremony they’re forced to do is insane. It’s a literal waste of their talent and time. We could probably net most of the claimed AI gains by taking a serious look at pointless workloads and come out ahead due to not needing the energy and capital expenditure.
It’s good for Nvidia. It’s not as good as it was before. (Assuming DeepSeek’s claims are replicable.)
Nvidia will definitely stay profitable for now though, as long as Deepseek’s breakthroughs are not further improved upon. But if others find additional compression gains, Nvidia won’t recapture its old premium. Its stock hinged on 80% margins and 75% annual growth, Deepseek broke that premise.
Growth might take a short-term dip, but may well be picked up by induced demand. Being able to train your own models "cheaply" will cause a lot more companies and departments want to train their own models on their own data, and cause them to retrain more frequently.
The time of being able to sell H100 clusters for inference might be coming to an end though.
OMG, it seems tech has been invaded by baaing crypto bros
Their moat is >1B people are already using ChatGPT monthly.
They aren't going to switch unless something is substantially better.
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.
> They aren't going to switch unless something is substantially better.
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.
But 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.
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).
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.
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.
You're in various spots of this thread pushing the idea that their 1B MAUs make them unassailable. How are they gonna get to 10B in a world with less than that total people?
> 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.
They can't even make money at the $200 price point, though. https://x.com/sama/status/1876104315296968813
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.
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.
I wonder what the direct user counts are.
« The thing I noticed right away when Claude came out is how little lock-in ChatGPT had established. This was very different to my experience when I first ran a search on Google, sometime in the year 2000. After the first time I used Google, I literally never used another search engine again; it was just light years ahead of its competitors in terms of the quality of its results, and the clarity of its presentation. This week I added a third chatbot to the mix: DeepSeek »
Follow up: https://x.com/TheStalwart/status/1884606421225848889
This is why OpenAI is so deep in the product development phase right now. They have to become the OS to be successful but I don't see that happening
Tell that to Friendster/MySpace and Facebook.
Try again.
MySpace and Friendster both spent significant time as the #1 social sites. Facebook unseated them rapidly. The same is possible for OpenAI.
That's 1 in 900.
There's 5.5B internet users in 2024. ~1B of them used ChatGPT monthly.
That's 1 in 5.
Do you see the difference yet?
It's literally orders of magnitude.
> It's literally orders of magnitude.
Sure, and the speed at which ChatGPT went from zero to a billion is precisely why they need a moat... because otherwise the next one can do it to them.
Your argument is like a railroad company in 1905 scoffing at the idea that airliners will be a thing.
Facebook probably would've never became a thing if MySpace already had ~115M users when it started.
MySpace had ~1M.
That's why DeepSeek (or anyone else) is going to have an incredibly difficult time convincing ~1B to switch from ChatGPT to their tool instead.
Can it happen? For sure.
Will it happen? Less likely.
If anyone unseats ChatGPT - it's much more likely to be a usual suspect like Google, Apple, or Microsoft - then some obscure company no one has ever heard of.
Of course, anything is possible.
There are different moats [1]. You’re describing incumbency, an intangible moat. It’s nice, but it’s fickle. Particularly with something with low switching costs.
OpenAI could argue, before, that it had a natural monopoly. More people use OpenAI so it gets more revenue and more data which lets it raise more capital to train these expensive models. That may not be true, which means it only has that first, shallow moat. It’s Nike. Not Google.
Google has a low switching cost, and hardly anyone switches.
ChatGPT is quite similar to Google in this way.
iOS has 70% market share in the US
Google has massive network effects on its ad business and a natural monopoly on its search index. Crawling the web is expensive. It’s why Kagi has to pay Google (versus being able to pay them once and then stop).
1B MAUs doesn't look great if half of them come from one source that can easily change to a competitor.
Except one product is 100% free and the other is mostly locked behind paid subscriptions
It’s already unable to keep up with demand, it will never be the default on mobile devices and businesses in the US will never trust it.
The important question is "will this and similar optimizations to come permit local LLM use, cutting OpenAI out of the equation entirely?"
This will make the cloud providers - especially AWS, GCP and to a lesser extent the also ran clouds more valuable. The other models hosted by AWS on Bedrock are already “good enough” for most business use cases.
And then consumers are definitely not going to be running LLMs locally on their computers to replicate ChatGPT (the product) anymore than they are going to get an FTP account, mount it locally with curlftpfs, and then using SVN or CVS on the mounted filesystem and then from Windows or Mac, accessed the FTP account through built-in software instead of using cloud storage like Dropbox. [1]
Whether someone comes up with a better product than ChatGPT and overcome the brand awareness is yet to be seen.
[1] Also the iPod had no wireless, less space than the Nomad and was lame.
Not personally. They'll let Apple handle it for them.
(This is already a thing. https://machinelearning.apple.com/research/introducing-apple...)
The local LLM on iPhones are literally 1% as powerful as the server based models like 4o.
That’s not even considering battery considerations
Currently, yes. That's why this is a compelling advance - it makes local LLMs much more feasible, especially if this is just the first of many breakthroughs.
A lot of the hype around OpenAI has been due to the fact that buying enough capacity to run these things wasn't all that feasible for competitors. Now, it is, potentially even at the local level.
moat noun a deep, wide ditch surrounding a castle, fort, or town, typically filled with water and intended as a defense against attack.