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Models are going to end up priced as a commodity (we’re already seeing this happen). It will be profitable but not have the large margins that are historically true for software. From a financial perspective models look a lot more like a hardware product than a software product. 1/

There are a two big factors at play here. 1) model output (tokens) are fungible. 2) Training and operating models are VERY hardware intensive. There is a large capex required to get into model development and serving. 2/

Compare this to the energy (oil) industry and there are a lot of similarities. A lot of capex is required to drill and refine oil. There is minimal differentiation in the final product (people don’t care who produces the gas they put in their cars) 3/