Has the generative AI price collapse already started?

OpenAI just announced pricing for companies looking to integrate its ChatGPT service into their own products, and it looks a lot like a 90 percent sale.

It all starts with OpenAI, a former nonprofit that now seeks riches as lustfully as any Silicon Valley unicorn. The company has created a dazzling array of products, including the DALL-E imager and the renowned ChatGPT service.

ChatGPT works with a system known as the Large Language Model (or LLM), and is one of several lines of LLM that OpenAI sells commercially. LLM result buyers are mostly companies that integrate language related services like chat, composition, summarization, software generation, online search, sentiment analysis and much more into their websites, services and products.

For example, dozens of startups are using LLMs to help their own clients produce corporate blogs, marketing emails, and click-through SEO articles with radically less effort than ever before. This may add little to our cultural heritage, but quite a bit to the results of the most astute users of these companies. As I write this, at least 65 startups are selling these kinds of copywriting services, with new ones launching on a weekly basis.

Most are basically thin wrappers looking to arbitrage LLM pricing, with virtually no differentiation or competitive moat. Some of them, most notably Jasper, which recently raised money with a $1.5 billion valuation, are building value-added services around the LLM results they retrieve and reformat, which may allow them to differentiate and thrive over time.

OpenAI is currently the largest LLM provider, though there is increasing competition from Cohere, AI21, Anthropic, Hugging Face, and others. These companies generally sell their output “by the token”, with a token representing roughly three-quarters of a word.

To give you an example, the reference price for a very powerful OpenAI model called Davinci is 2 cents per thousand tokens, which is about 750 words. This means that it would cost Jasper about 8 cents to have Davinci write six 500-word blog posts for you.

Jasper thrives on pricing plans and subscription models that allow the company to charge him more than 8 cents for those posts. Prosperity for you lies in getting more value from those posts in the form of clicks, leads, sales, and donations than you paid Jasper to pay Davinci to write them. For better or worse, this dynamic will clearly lead to a tsunami of new “content” flooding the Internet in no time.