Has the price collapse of generative AI already begun?

OpenAI has just announced pricing for businesses looking to integrate their ChatGPT service into their products, and it looks a lot like a 90 percent discount.

It all started with OpenAI, a former non-profit organization that now fights for wealth as avidly as any Silicon Valley unicorn. The company has built an impressive suite of products, including the DALL-E image generator and the well-known ChatGPT service.

ChatGPT runs on a system known as the Large Language Model (or LLM) and is one of several lines of LLMs that OpenAI sells commercially. Buyers of LLM results are mainly companies that integrate language services into their websites, services and products such as chat, compilation, summarization, software creation, online search, sentiment analysis and more.

For example, dozens of startups are using LLM to help their clients create corporate blogs, marketing emails, and search engine SEO articles with much less effort than before. This may add little to our cultural heritage, but little to the results of more cautious users of these companies. As I write this, there are at least 65 different startups offering this kind of copywriting service, with more coming up every week.

Most of them are basically thin wrappers aiming for LLM price arbitrage with little to no differentiation or competitive moat. Some of them — most notably Jasper, which recently raised $1.5 billion in funding — are building value-added services based on the LLM results they extract and reformat, which can allow them to stand out and thrive over time.

OpenAI is currently the largest provider of LLMs, although competition from Cohere, AI21, Anthropic, Hugging Face and others is on the rise. These companies typically sell their products on a per-token basis, with the token representing roughly three-quarters of a word.

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

Jasper’s prosperity lies in pricing plans and subscription models that allow the company to charge you over 8 cents for these messages. Prosperity for you lies in getting more value from these posts in terms 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 very short order.