[fny]

I'm not convinced raw costs matter:

1. Compute costs collapsed since the advent of Cloud and yet hyperscalers still have fat margins.

2. Many open source office suites exist yet none compete with the ubiquity of gsuite or office. GitHub, Slack are similar examples.

3. Both Windows and macOS dominate the home desktop space despite free alternatives existing for a long time.

4. Many formerly open source infrastructure components like Redis and Elastic Search have Apache equivalents, but they still command healthy margins.

I understand the arguments for a margin collapse, but I don't see any historical analogues. It seems that enterprises will pay top dollar for service guarantees, integration, and someone they can sue.

It's nobody gets fired for buying IBM all over again.

[nostrademons]

There's a huge case of survivorship bias when trying to recall historical analogues, because in every instance where margins collapsed and competition made the industry a commodity business, the big proprietary names are no longer with us. Here's a selection of examples, though:

1. Memory chip margins collapsed so much in the 80s that Intel exited the memory chip business entirely. At the time, they were known much more as a memory chip company than a microprocessor company.

2. Margins for high-end workstations collapsed in the face of cheaper IBM PC clones and an explosion of MS Windows software. This led directly to the deaths of SGI, Sun, Symbolics, Lucid, LMI, etc.

3. Proprietary UNIX variants like HP-UX, IRIX, AIX, and SCO Unix have basically completely died out, replaced by lower-cost proprietary OSes like Windows and MacOS, or by open-source descendants of Linux and BSD.

4. Many commercial database vendors like Oracle, dBase, Sybase, FoxPro, and Microsoft (SQL Server and Access) found themselves very much under margin pressure from PostGres, MySQL, and SQLite. Oracle survived thanks to their massive installed base and legal department, and Microsoft survived because they could cross-subsidize from their OS and Office monopolies, but dBase, Sybase, and FoxPro are no longer with us.

[cb321]

That is a good list. While I'm sure many companies could be added, I only post to include DEC https://en.wikipedia.org/wiki/Digital_Equipment_Corporation whose `vt50/vt100/vtXX` ideas may be with us, in software, for perpetuity unless something like Arcan (https://arcan-fe.com/) ever takes off.

[mikenew]

Arcan is such a fascinating project that I've never quite managed to get my head around.

[jtolmar]

There's a really noticeable difference in time frame covered in your examples (80s and 90s) and the one in the comment you're replying to (2010s and 2020s).

Is that just two people with different go-to examples? Or is there something going on here?

(I don't mean this as a leading question to some conclusion in my back pocket, I genuinely have no clue.)

[corford]

It's politics.

The US's corporate problems in the 1980s and early 1990s existed when strong international competition existed.

It began to change with things like https://en.wikipedia.org/wiki/1986_U.S.%E2%80%93Japan_Semico... and https://en.wikipedia.org/wiki/Plaza_Accord.

It was accelerated further with things like anti-circumvention clauses in Free Trade agreements (see Cory Doctrow's recent highlighting of this: https://pluralistic.net/2026/01/01/39c3/) and then had more gasoline thrown on the fire in the ZIRP/easy money era post GFC, culminating with the bazooka of stimulus unleashed post-covid.

My best guess is we are now going to witness ~20 years of slow unwind. You can already see signs of this in things like RoW/EM stocks outperforming the S&P, treasury yields diverging from other "safe haven" soverign bonds (e.g. swiss), gold price rising, Europe starting to get serious about addressing the Draghi report's findings, European defence spending increasing, China starting to act like the "adult in the room" wrt the recent Iran/US blow-up etc. Essentially, countries/blocs attempting to re-assert sovereignty that has been willingly diluted over the last ~30 years to mainly America's benefit.

[nostrademons]

Somewhere else in the comments here, someone else remarked "Individuals perhaps [move to the new models], but not organizations."

That's illustrative. The mechanism by which organizations are forced to update their technology, move to more competitive suppliers, and cut costs is a recession. In one, every business that doesn't do so goes bankrupt, and what's left are the more efficient businesses that have adopted technology effectively.

We haven't had a real recession since 2009. (2020 was an odd case, because it was effectively brought on by government edict and so it actually killed a number of efficient but unlucky sectors while doing nothing to clean out the dead wood in major corporations). The next one is likely to be a doozy, because the economy is filled with bullshit jobs, bullshit corporations, and bullshit products.

[Dumblydorr]

“Brought on by government edict”

No, brought on by a novel pathogen that killed 10 million people. It would’ve been much worse without government action.

[pocksuppet]

Without the indecisive government action that was taken, millions more people would have died, but the economy would have done better.

With decisive government action (see New Zealand), millions less people would have died, and the economy would have done better.

[klipt]

New Zealand does have the advantage of an ocean border and thus near total control on entries and exits.

Compared to the very porous land borders of the US.

[Xunjin]

This argument is so flawed in many ways, economies are built by people for people. Extrapolate the numbers, let's say in the COVID Pandemic a country, take USA as example, has 10% percentage of their population killed by it, would that be better to the economy?

[rdbl27]

The case of Sweden entirely falsifies the theory that "it would've been much worse without government action."

No government action whatsoever was taken in Sweden. None. Death rates were no better or worse than adjacent countries that intervened extensively.

Ergo, government intervention was irrelevant one way or another.

[arkh]

> The next one is likely to be a doozy

The US, EU, China are teetering on the edge of a crisis. Russia is well on its way.

I feel like 2008 was just a warmup to what may be coming.

[davedx]

The EU is not "teetering on the edge of a crisis", why do you say that?

[cezart]

Not OP but, EU economy is being squeezed by China on the industrial and tech front, and by the US on the innovation/startup front. It is clear EU is no longer at the technological/economic frontier like it used to be 10-20 years ago. At the same time there are serious demographic, budgetary and political challenges all across the continent. Dragi's report covers some of these. It feels like the whole system might fall into a crisis soon if measures are not taken

[neonstatic]

> Russia is well on its way.

Including the warmongering angry midget next to the US, EU, and China is funny. Russia's economy, before they decided to shoot themselves in the face, was the size of the Netherlands. Whether they are in a recession or not is irrelevant to anyone but them.

[ben_w]

I thought Russia was about 2x the Netherlands by nominal, and 5x by PPP?

More relevantly, they were one of the world's petrol stations, and now they're not.

[cs702]

> the economy is filled with bullshit jobs, bullshit corporations, and bullshit products.

Yeah, it sure feels true.

There's even a book about it, you know, to help people cope with it:

https://press.princeton.edu/books/hardcover/9780691276786/on...

[Jedd]

100% agree with the sentiment here, but a small nitpick - MS SQL originated as a port of Sybase onto (IIRC) OS/2.

[zmgsabst]

Also cases where both happened, eg, Xerox wasn’t wiped out but copiers now have multiple vendors at the high end and have commodity via other brands at the low end.

[cmiles8]

There’s a difference between proprietary software thats highly profitable maintaining a stronghold over “cheaper” options and a massively overvalued and artificially inflated ecosystem having to confront economic realities.

We are seeing the later start to unravel.

[steelframe]

I've heard it said that Oracle doesn't have customers. They have hostages.

[margorczynski]

Still, the clock is ticking. I don't know of any "new" company that would use Oracle instead of e.g. Postgres or would migrate to it. That's probably why they're pretty desperate to jump onto something new before the old source of income fizzles out.

[andriy_koval]

My bet is that in some industries like banking, PG share is minuscule.

[ak1ng]

Sun didn't die because of the workstation market. It survived much longer.

[galangalalgol]

It pivoted to server market and people who didn't think running linux was professional enough. Workstations were being held afloat by that pivot. Also they were general purpose instead if limiting their workstation market to just one niche.

[Obertr]

second this. great analysis

[Obertr]

also docker is an interesting example. bc its so hard to earn money on it being such a deep commodity you can not close source

[cogman10]

Unlike all your examples, switching out an LLM is both cheap an easy. So easy that every 3 months or so new models are released and people grab them and start using them.

The UX is the same regardless the provider. You send in a prompt, it spits back an answer.

In all your other cases, the cost to switch is losing support and a difficult transition period. But in the case of LLMs, there was no support to begin with. The transition is basically updating your current harnesses to know about the other models.

I think the comparison most apt is the rise of AMD. Sure, it never(?) achieved market dominance, but it did ultimately make a huge dent. And a big part of that was because AMD x86 was pretty close and pretty compatible with Intel x86 at a fraction of the cost.

[pants2]

If you're developing on top of LLM APIs directly, this is definitely not true. There are differences in how context caching works, in what's available through native harnesses, the types of tools you're fine-tuned on (GPT uses apply_patch while Claude uses edit, with different formats), the API surface (Agents SDK, Responses API, Managed Agents), cost structures, and best-practice guidance all around.

Not to mention the meta of account limits, billing, ZDR contracts, etc.

[peab]

It really depends on what you're doing, but most LLM usage and agentic runs are pretty interchangeable in my experience, and it's usually trivial to switch.

If anything, you're better off supporting multiple LLMs as backup because most model providers have been so inconsistent with working all the time

[saberience]

Dude it’s not trivial to switch because the behaviors are different!

You’re clearly not building a product based on an LLM.

I’m still using various old Anthropic and OpenAI models for products I’ve built and released because I can’t risk the behavior changing in unpredictable ways and the users being pissed.

It’s much easier to switch out some deterministic software than an LLM which you’ve spent a ton of time on testing and benchmarking and understanding its nuances. Changing it is like replacing an employee who’s critical to the business.

[staticman2]

Anthropic has discontinued models in as little as 13 months from launch so if you do business with them switching can't be that big a deal?

[vrganj]

Can you give specific examples on what differences make it hard to switch?

Because this claim is counter to my experience as well.

[mjhay]

The behavior of a single model and version can and does change. There’s not only built-in stochasticity, but closed hosted models like Claude are tweaked and changed all the time.

[moxza]

For the public facing consumer functionality I have Gemini Flash running on guardrails directed by a state machine that calls it statelessly everytime. For that, it's strictly locked to a version. I can't afford to suddenly get responses that the SM is not tuned for.

As for which model does the building... I'm not at all attached. Enough logic, and CI gates/tests live outside the whims of the LLM to be able to hotswap them any time.

[asdfaoeu]

I don't think they are saying it's trivial but compare say for example switching an organisation from Office or Windows the example that started this. They are not even in the same ballpark.

[peab]

I've been building multiple products with LLMs, and they are in fact interchangeable for the most part.

In fact, most benchmarks show this! Most benchmarks have similar performance for the same classes of models.

On top of this, there are tools like open router, or even the openai SDK which trivially allows you to swap endpoints for the LLM!

If you're using the agents SDK from openai or something, then yeah it's not interchangeable but that's you doing it wrong

[devsda]

Makes sense but honestly if you've spent more time testing and working around the nuances to build consistent experience doesn't it mean you actually need more standardization to easily switch models if/when your trusted model is not viable for you provider?

[byzantinegene]

just use your agents to do the migration, that's what it's good at.

[chairmansteve]

Exactly, the LLM itself can do the migration, surely?

[tharkun__]

Exactly, as in, really, will they? Where and at what price, especially across an actual enterprise that needs to deploy them to lots of devs? There's much more than just the actual model.

Of course my numbers are a sample of one and I am not spending a lot of money or time on it. Just lazily trying things on my "happen to have this" hardware. But basically trying out the Claude Code I'm used to from work but locally with a bunch of open weight models.

I can run super tiny models on my 8GB NVIDIA card. They all suck (I have to use <=~5GB models if I want "usable" ~250k context that doesn't need to use system RAM and CPU (which makes things super slow).

I've also tried a GLM 4.7-flash, which even though it's super slow (in comparison) with ~250k context and it just doesn't cut it vs. the Claude Sonnet or Opus I get to use at work. All the while these are all touted as "totally usable, Claude/ChatGPT killer!" replacements.

It's just not "there" with tool use or building software for that matter. Like, just a simple Claude "web search" fails with it. So I asked it to build itself its own "web search" functionality and it just couldn't. It made so many mistakes its just not funny any more. And it couldn't recover from them either. I retried a few times (as I didn't have python installed and it wanted to implement it using that - this happens to be new system - never mind other attempts). I spent as much time doing this (and failing) as I spent building an actual full feature at work last week w/ Sonnet.

If it can't build itself a simple web search to .md file tool/skill, how am I supposed to trust this with actual coding? I'm used to being able to point Claude at our large code base and essentially work with it like a junior doing my bidding. Maybe 5.2 is a killer game changer vs. what I was able to try out (if slowly) but you really have to show me to convince me at this point. And not with synthetic benchmarks. In those, all of the models I tried are supposedly super awesome.

[arcanemachiner]

4.7 Flash is a small model that's almost a year old, which is ancient. And yes, your dinky GPU will not run anything worthwhile.

Just spend $5 on OpenCode Go and give GLM 5.2 a shot if you have the time. It's not quite as good as Opus, but it's more than good enough for many tasks.

[mikae1]

> Just spend $5 on OpenCode Go

$5 the first month, then price is doubled.

[arcanemachiner]

The $5 is so they can see if open weights models are worth using, not so they can use it for a month. (Which you can't; The quota runs out way sooner than a month for any serious usage. Still worth the price of entry.)

[Sevii]

With OpenRouter you can pay flat rate and try nearly any model on the market.

[wonnage]

Open weights != local models.

[Der_Einzige]

This is a meme and massively over-complicating what is ultimately quite simple.

[AussieWog93]

>switching out an LLM is both cheap an easy.

Honestly, these days probably less friction switching out Redis or Elasticsearch (backend) than changing LLM provider (human facing).

Fable is seriously good enough now to, in a 20k line project, take "replace Mongoengine with raw PyMongo" and not screw anything up.

[woeirua]

Agents will make all of these migrations trivial. I expect margin collapse across a lot of tech darlings.

[thedougd]

This is the conversation I plan to have with Okta sales soon. Wait till you see how easy AI makes it to switch to Entra ID or anyone else. It’s tedium not even problem solving.

[calgoo]

My problem with the SSO providers is not the technical part, thats "easy". Its the coordinate with the 200+ external and internal vendors / support to redeploy the SSO part which is time consuming. I always say its a ~3 year project, which can be done in 6 months with the right amount of resources, especially if the platform has been running for years.

[thedougd]

There are the handful that it’s not just a web console or API you interact with. Have to file a support ticket.

Those will be a pain.

[itzprintz]

If the price is the only incentive, I'd stay away from Entra ID

[vidarh]

If the point was to move there'd be no point in having a conversation with Okta sales. The point is to get a discount.

[jaxn]

though Okta is the first provider working on the enterprise mcp stuff.

[thedougd]

It’s a new SKU. You’ll have to pay for that new type of app.

[mewpmewp2]

How could switching out a stateful service be easier than stateless?

[calebhwin]

Hard disagree.

Two LLMs with the same numbers on important benchmarks could have vastly different behavior in actual deployment. Not sure if as hard to switch as Excel <> Libre but still not "cheap and easy".

[vmg12]

This is just another example of the bitter lesson. In a year a model will come out that will make none of these model specific optimizations you made matter.

[pizlonator]

Yeah

But the point is that at any moment, there is friction in switching

[onion2k]

Unlike all your examples, switching out an LLM is both cheap an easy.

Rolling out AI access in a large business is still hard, especially if you're trying to do it safely e.g stopping people throwing all your company data including user PII into a chat for productivity reasons.

It's more a staff training and guardrails issue than a choosing which LLM to use issue, but I imagine picking an open model like GLM would make it harder because the 'enterprise stuff' will be missing.

[andsoitis]

> So easy that every 3 months or so new models are released and people grab them and start using them

Individuals perhaps, but not organizations.

[iknowstuff]

I don’t exactly see orgs lining up to switch (and train) their employees between claude desktop and codex and whatever copilot is doing. There’s probably some inertia to those harnesses/integrations on top of the llms themselves.

[Escapade5160]

Most large orgs do not need to train end users. They just need to add glm-5.2 to their router and their in house harness will pick it up. Then slowly limit usage on anthropic models and people will swap willingly. It's a simple /model command in every harness.

[torginus]

Yeah, most big orgs are pushing the idea of 'whitelabel' LLMs. Even if they choose to hang on to Claude Opus, they won't name it, they'll just call it the 'extra mode' and 'auto mode' will eventually switch to a local LLM in their harness.

[mgambati]

The inertia is legal and financial. People are paying Anthropic through AWS accounts because the simple reason of not dealing making new contract and legal agreements is enough of reason of the inertia.

But, eventually, I’m quite sure that AWS will also provide open models with those contracts without any inertia. Copilot is already offering Kimi.

My company has a deal with Devin and they provide new models all the time, and open models are becoming the most used ones by our internal metrics, especially because the company is very worried about cost.

[zmgsabst]

AWS already supports Llama and GLM in its Bedrock service for hosted models.

They’re much cheaper to run, eg, Llama 3.3 Instruct 70B is 5-10x cheaper than Sonnet 5.

https://aws.amazon.com/bedrock/pricing/

Say you have 20% of usecases that require the more expensive model — but in 80% you could just use Llama instead of Sonnet (eg, for basic queries of a document). That saves 80% of that 80%, or 65% of your total bill!

That is the kind of “swap” that’s likely to occur in automated tooling as pricing pressure kicks in — “can you save 65% on our AI bill by switching Bedrock over in 80% of uses?”

[regularfry]

Bedrock is really out of date with the models it offers, to the extent that I'm not sure they even have plans to update what's on there now they have the deal with Anthropic. They're still offering Qwen 3, not even 3.5 and certainly not 3.6. GLM 5 is the newest z.AI model they have, when it's 5.2 that would be the one to worry Sonnet.

There are some ok models on there (Qwen 3 Coder Next is usable and fast, for instance) but the lack of updates in a fast-moving field makes it something I don't want to recommend to my org.

[whattheheckheck]

Because these models are not going to stand up legally

[skeptic_ai]

Also they pay for legal liability of code produced

[Yizahi]

Maybe for a fantasy of legal liability of output produced. I haven't heard of any LLM corpo being held liable for any output they generate. Even NYT lawsuit is going nowhere for 3 years in courts already, despite being the most grounded.

[skeptic_ai]

Copilot insures your company up to x if someone sues our company. I guess most companies do this. That’s why we can’t use anything else except copilot.

[bayarearefugee]

What "training" do you have to do to get a professional developer to switch LLMs or harnesses? Its literally just download the other one, point it to your code base and start typing into that text box instead of the other one.

[iknowstuff]

devs are the easiest, yeah.

[saghm]

What would "training" even entail for that? As far as I can tell, using these tools directly is basically identical in terms of what you need to know. If you happen to have a bunch of custom configurations, maybe you need to invest some time into porting them, but it's not clear to me why you think that anyone would need to be trained if they spent months using one tool and then suddenly had t switch to the other.

[peab]

Enterprises switched from openai to anthropic this year - anthropic overtook openai for the first time. I don't see why they wouldn't switch again.

There's barely any moat. All the data is with connectors, memory is near useless

[bag_boy]

Switching an agent harness is more difficult, especially on the enterprise/teams level.

Once your team gets settled with Claude teams, cowork, and the various plugins, it’s going to be a pain in the butt to switch.

[walthamstow]

Plugins and skills are completely trivial to move and most work with any model. What is not trivial are Anthropic's new managed agents vendor lock-in offering.

[danny_codes]

Is it? I switched to Kiro and it's essentially identical.. well a bit better because you get a better idea of what the harness is doing, but otherwise identical.

[bag_boy]

I should have clarified that it’s not difficult for technical workers to switch, but for your average knowledge worker…it’s not easy switching from Claude Cowork to Codex. I don’t think the switch from Cowork to open source is easy.

[Shorel]

I made my own. It's true I don't want to switch to another harness now.

But switching models is just a command.

[skissane]

The irony is that Claude will help you migrate away from itself

AI is possibly the first product in history that will eagerly help you replace it with one of its competitors.

[skeptic_ai]

Wait till they will pop a warning: “using Claude to migrate away will suspend your account. “

Or even better just silently sabotage the migration so you can’t do it. Something we can definitively expect from Claude given past behavior

[Forgeties79]

> Unlike all your examples, switching out an LLM is both cheap an easy.

For now

[rhipitr]

Switching out an LLM? What do you mean by this? Sure some models can run locally but in a company with lots do people they might not be willing to spend to self host a larger model that requires beefier hardware to host, plus all the complexity to scale that out to a bit internal user-base

[KetoManx64]

Most of the AI companies have OpenAi compatible API's, so you just get a subscription from another provider and change the URL that your LLM Agent Harness uses to talk to the AI.

I use OpenRoutet which lets you switch between providers (Anthropic, ChatGPT, Z-AI) whenever you want. Sometimes I'll have two different models from different providers evaluate each other's answers.

[lompad]

They don't just need healthy margins, they need to make back almost a trillion dollars in a couple of years. Comparing that to elastic search and redis doesn't make much sense.

Hyperscalers work because it actually has value compared to free offerings and because of the absolutely massive cost of switching providers.

Similar with Windows and macOS. Extremely high cost of switching to something different, if possible at all.

Same with office. Extremely high cost of switching due to compatibility issues and retraining of staff.

Your post primarily shows: It's all about lock-in. So far, it doesn't look like LLMs have any of that. So I don't think your points are valid here at all.

[shaewest]

The companies don't necessarily need to make back $1T, the investors do, and those investors don't require $1T in profit to do so, they need an asset worth $1T.

Considering leaks suggest Anthropic's ARR would be $47B, that'd be a 20x valuation, but it wouldn't shock me if Anthropic doubles their revenue in the next year or two, in which a 10x revenue could easily support a $1T valuation, and boom there's your ROI, but considering they've raised $135B total, and their ARR is 30% of that, I'd consider that a pretty good ROI, especially if growth continues.

[altmanaltman]

Wait what? Why are you measuring valuation as 20x revenue here? If its a public stock (which is what anthropic plans to be soon), it doesn't matter. Otherwise spacex's valuation should be... 18.67 billion x 20 by your logic but its current valuation is over 2 trillion dollars right now.

ARR literally doesn't mean much in terms of how these companies are valued by investors and it will mean little when it goes public. And yeah 10x their revenue in a year sure but they will also likely 10x their costs if they want to keep scaling

[shaewest]

I was arguing a 20x ARR valuation based on a simple 'potential' justification for $1T.

If I was to go further into that, I'd say that Anthropic has grown from $9B ARR Dec 2025, to $47B at their Series H.

I'd say that Anthropic is still a growth stock, so their $1T valuation is based on expected ARR/growth over the next year, and if we assume a double in ARR (justified by their supply constraints as proof of demand), that's 10x Valuation to revenue.

We could consider valuing by P/E, but they're in a growth stage so that's a waste of time, hence why investors focus on growth, and hence ARR growth is hugely important. If they managed $100B ARR, the same P/E as other top software companies by marketcap, they'd fit in that lineup.

If Anthropic was to hit $100B ARR, they be in similar ratios of ARR:Valuation to Meta, MSFT, Apple, etc. If you assume per token price reduces, and 'per intelligence' prices to reduce, which bullish investors would, you'd also assume a good margin over time, (which rumours appear to support for Anthropic).

[w29UiIm2Xz]

If AI replaces labor, that's a trillion dollars of labor. About one-fifteenth of annual labor/wage earnings.

[AuthAuth]

the value of labor will collapse so we cant use current earning figures. China will be able to spend to undermine it even more.

[fny]

It's 1 trillion over a number of years. There's a discount factor you're forgetting.

[deaton]

If AI replaces labor, there will be no money to make back

[alightsoul]

Not convinced about office. Plenty have switched to gsuite. Plenty of people have switched to MacOS and android away from windows.

[nodja]

> but I don't see any historical analogues.

The losers are quickly forgotten. Palm, Blackberry, AOL, MySpace. Yahoo, etc.

Software gets replaced all the time too, you even listed one and didn't realize. 15 years ago you'd call office irreplaceable, now you have to add gsuite to the mix, in 15 years there might be others. I know people that have never had office installed on their PC and use spreadsheets daily.

> It seems that enterprises will pay top dollar for service guarantees, integration, and someone they can sue.

Of course. But why pay $25 per million tokens for sonnet when you can pay $3 for GLM? Both probably running on AWS/Azure/Etc. under some third party.

[cpursley]

Because nobody’s paying for tokens, they’re paying for monthly plans and right now those are still a better bargain.

[Certhas]

Individuals, sure. For enterprise you can't get monthly plans. You have to pay per token.

It's a bit like saying "nobody pays for Microsoft Office". I certainly don't know anyone personally who has. Students get a free Education License and then your employer provides one for you...

[npodbielski]

Strange. This is what they got at my company. I do not remember anyone mentioning paying for tokens. Maybe because it is fairly small, couple of hundred people in IT.

[Certhas]

Officially it's not available anymore. But there are team plans that are not enterprise, so if you are small enough and fine with the data protection included in those maybe that is what you're working with? And I do know NGOs were offered seat based plans after they were officially not available anymore.

Also: This change came in in March so if you got your contract before then this will only bite once you renew.

https://support.claude.com/en/articles/9797531-what-is-the-e...

[npodbielski]

Ah past renewal... So probably in next contract there will be a lot of thinking if we still need that.

Curious: Anybody have comparison what is the difference when company is changing to token based billing? How many times it is bigger than 200$ subscription?

[est31]

Those solutions have moats:

1. the cloud moat is mostly around talent really. Try finding people who can self host the alternatives to S3 et al at the HA and the scale the businesses need. Those alternatives are usually not free either, and each product might have its creator acquired (and the product cancelled) or similar. if you're a larger business then the data lock in becomes a moat: getting your data out of the cloud is prohibitively expensive. Furthermore, large businesses have sweet discounts.

2. ms office has immense networking effects due to its formats being quasi standards in many industries. try sending an odt to a government entity. As for gsuite, it uses open formats but it's classical google fashion a large suite of software bundled together and not that expensive for what it offers.

3. Linux is not a free alternative if you're a business, you still need to pay someone to support the computers with linux on it, and operating systems have the strongest network effects ever. Linux also has no stable ABI so one can't easily deploy third party software for it.

What's the LLM moat? Codex is OSS and Claude has gazillions of alternatives. Cursor is a nice app but it's a bunch of patches on top of vscode, a team of 5 people can vibecode it in 6 months.

[platinumrad]

Linux has a very stable userspace syscall ABI. About as stable as Windows, and much more stable than MacOS or the BSDs. I agree with everything else though.

[est31]

Yeah, Linux-the-kernel does have a stable ABI indeed, but this is not relevant for most ISV desktop software out there. In my comment above I was referring to Linux-the-OS (aka GNU/Linux). The userspace libs don't have a stable ABI at all, and this is a widely discussed problem. Other operating systems built on top of Linux-the-kernel don't have this problem, Android has a really stable ABI.

[mr_toad]

> The userspace libs don't have a stable ABI at all, and this is a widely discussed problem.

And DLL hell isn’t? Or the shambolic mix of 32 and 64 bit libraries on Windows?

Anyway, desktop binaries are increasingly rare for business software.

[iknowstuff]

I dont think dll hell is a problem anymore

https://en.wikipedia.org/wiki/Side-by-side_assembly

[alightsoul]

You are describing the gnu c library I believe. That can be worked around with flatpak and appimage.

[ammo1662]

For user space applications, Win32/Windows is the most stable ABI on Linux, via Wine/Proton.

[whs]

Most people don't directly call Linux syscalls though but go through glibc. It might even be unavoidable if you want to ship desktop apps as the library will use it. If it's that easy there wouldn't be Python's manylinux, flatpak base packages or Steam Linux runtime

[iknowstuff]

Not relevant for user space applications written atop glibc/gtk/kde/qt

[newspaper1]

Interesting that LLMs remove the moats for 1 (except for data lock-in) and 3, possibly even 2 if they can convert formats on the fly.

[tuvix]

A lot of those things you mentioned have sticking power because they’re familiar to folks and migrating to something else is a big deal.

I can’t imagine most people would be able to tell the difference between Sonnet and GLM 5.2. If the infrastructure around the model you’re using doesn’t change, then swapping models is extremely easy.

[QuercusMax]

I'm using pi-coder with just the free-tier models I can get on openrouter / opencode / kilocode. When I run out of quota on one model I often switch to another model in the same session, and it generally works just fine.

[Bolwin]

When I use it for fiction, I generally switch models 2-3 times per response. It's basically normal

[arikrahman]

I agree with swapping models making it easy. With openrouter, I just change the provider. With reasonix harness, cache hits are basically free. And that's with unsubsidized American providers like Digital Ocean or cloudflare.

[argee]

Indeed, as it gets more commoditized it feels more like swapping electricity providers. Who cares whether you get your electricity from IBM or the state of Texas? An amp is an amp.

[fragmede]

That's an interesting question. What if we did care? Is this amp from burning dinosaurs or from the sun or from fission? What if we could tag power as coming from oil vs renewables? how would that affect our habits?

[argee]

We care indirectly through cost. Hydroelectric, solar, or wind power are often among the cheapest electricity sources, for example. Beyond that, no we don't care. That's why if people want change we leverage policy on cost, via subsidies, surcharges, taxes, tariffs, what have you.

To a consumer, an amp remains an amp — so they get the cheap one.

[mistercheph]

Remember web browsers? compilers? web servers? databases? windows embedded? server operating systems?

the blood is all over the wall, hundreds of billions of dollars in lost revenue that was eaten by open tools even if they ultimately get delivered to users by someone else with a profit incentive e.g. AWS selling deployment of OSS

1. their margins don't come from service guarantees (see github), they come from unlawful anti-competitive behavior which is likely to be prosecuted under future US administrations

2. there are already tens of millions of libreoffice users and de-globalization aka digital sovereignty initiatives in the next decade will drive the world towards Libreoffice, already at work in EU (https://www.zdnet.com/article/why-denmark-is-dumping-microso... https://cybernews.com/tech/germany-microsoft-word/

2a. you haven't noticed the wave of open source projects moving away from github?

3. Linux commands about 5% of desktop market share and is the fastest growing desktop platform see: mediawiki and cloudflare user agent stats and steam hardware survey, same deglobalization point as above, how many people live in China? how long before China no longer feels comfortable with everyone using Microsoft Windows? What OS will Chinese people/corps use instead? hint: https://en.wikipedia.org/wiki/Deepin

[3abiton]

The target audience is different. Coding is mainly a trade of the tech savvy, who like many on r/localllama users do not hesitate to deply on 16GB Vram gpus. Even if so, it is estimated that within 2 years we will be able to run Claude 4.8 on consumer hardware give the rate of improvement of open-weight LLMs, which will put more financial pressure on "paid" labs. It's just a matter of rate of improvement which is shrinking between open-closed models.

[vmg12]

> I understand the arguments for a margin collapse, but I don't see any historical analogues. It seems that enterprises will pay top dollar for service guarantees, integration, and someone they can sue.

Intelligence has diminishing returns, the analogues are with humans. It's a waste to hire Albert Einstein for $X million to operate the cash register in a gas station.

Artificial super intelligence will not have many customers.

[therealdrag0]

Of course it’s not a waste to hire Albert Einstein to work in a Swiss patent office for normal wages ;)

[rubyfan]

In these examples cost of the solution does not generally scale with the use of the solution in the same way we see token use. In the case of LLMs the cost of use scales very differently than seat licensing.

Many corporations have found they have a new cost center drawing tens of millions or more with little direct evidence of productivity gain. Corporations are probably best positioned to either switch providers, leverage router solutions or at worst use the fact that they could to drive prices down from the proprietary providers.

[manquer]

> 4. Many formerly open source infrastructure components like Redis and Elastic Search have Apache equivalents, but they still command healthy margins.

Elastic just had round of layoffs[1]. Elastic still runs operating losses till Q1 2026 [2], albeit a small one, however just breaking even in operating income is hardly "healthy margins". A P/E of 17 is not exactly signaling confidence given they are growing ~20% y-o-y.

[1] https://www.elastic.co/blog/ceo-ash-kulkarni-announcement-to...

[2] https://ir.elastic.co/News--Events/news/news-details/2025/El...

[zjaffee]

Hyper scalers have a decent margin from a small number of their services and a much more normal if not a loss from many others. Additionally a massive part of their profit is support services and contracts.

They also benefit from the fact that developers do what is convenient for themselves and not what is necessarily computationally efficient (i.e. not pay attention to cross AZ egress/ingress, run an apache spark job when it could be done all within a normal database, build their entire product on irreplaceable/unswappable cloud provider specific databases and storage solutions).

AI will also experience a significant margin collapse, it's just not clear who will eat the brunt of it yet, the AI companies themselves or companies like Nvidia as more chip manufacturers/designers come into the arena and can meaningfully compete.

[zkmon]

Nobody got fired for IBM, but it took some battles for IBM to reach that level. Same with AI. Brand images won't develop until the street battles are over and dust settled. Otherwise, Google wouldn't have taken over Yahoo and ChatGPT would have remained the king. That didn't happen. The street fights are still raging in AI and won't settle down any time soon. Cost-concious usage can kick-out Anthropic overnight. Ultimately it's only the cost that matters and that will blunt all other factors, including security concerns and risk aversion etc.

Also, note that even the highly-regulated sectors invited opensource products and services and allowed data transfer across their network perimeter. That required "blunting" of the security policies, and it did happen.

[antirez]

The flaw is here:

> 1. Compute costs collapsed since the advent of Cloud and yet hyperscalers still have fat margins.

Cloud opposes switch inertia. To setup a complex system in a different environment is a complex operation. Changing AI provider is switching an endpoint.

[gbalduzzi]

The point in the article that you are not considering is how easy it is to switch to a different model provider right now.

You literally change a couple of env variables and you are done, your user experience is basically the same. I can try new models for an hour and be sure I can go back to the original model as quickly if I want.

That is not the case for the software you talked about. They all require way higher switching effort with more perceived risk.

[mlboss]

To switch an LLM you just need to open another browser tab and type in your chat query. You cannot say the same for any other kind of software. Traditional software have a large switching cost which acts as a barrier.

LLM providers are like airlines. You only need when you have travel and most of the time you go for the cheapest one. Maybe LLM providers should start providing reward points :) .

[majormajor]

> It's nobody gets fired for buying IBM all over again.

I think that's the historical analogue. How is IBM doing compared to pre-personal-computer disruption? Initially-limited home OSes like DOS were good enough to eventually dominate business too. The AI labs, with their massive funding and spending, are speedrunning the whole thing in a way that just might make that disruption faster and more fatal vs the lingering zombie relying on the IBM name. (The more massive amounts of capital you raise on future speculation of enormouse TAMs before, say, becoming profitable, the more dependent you are on the future speculations of outside interests. Double-edged sword.)

And I don't think being suspicious of the future of OpenAI margins is the same as saying open source DIY will dominate at all.

People don't wanna install their own OS or deal with changes in their office suite or rack their own servers, but a low-cost AI provider is gonna be more like a Wikipedia-vs-Encarta situation in terms of accessibility and similarity-of-interface.

[HDThoreaun]

I think the big thing here is that paying high margins on a relatively small expense is much more palatable than high margins on a big expense. If a company is spending $1 billion/yr on tokens that a really big incentive to find an alternative where spending $1 million/yr on some SaaS with even higher margins can feel like an easy choice.

[AJRF]

I don't think the parallels are quite as clear for a few reasons:

1. Lock in - with an LLM, there is practically no lock in because of the inputs & outputs being text. You can move easily

2. Motivation - I think you underestimate just how high some of these bills are for companies. Finance departments are already getting mandates to reign in spending even at the high level of subsidization.

3. Political Meddling - we're now at the point where the US strategy seems to be to artificially limit access to powerful models. If China continues its trajectory they will have models as good as Fable in 6 months to a year, and they won't lock it off. So cheaper, better models that are available is a massive incentive to switch. China is much less motivated to ratchet prices up if it's winning them marketshare. I do think David Sacks + AI strategy for US Gov are being very short sighted and it's going to blow up in their faces.

[lumost]

I suspect the concern is that model serving is a stateless “simple” problem.

As yet, no one has identified a reliable moat in inference. If the moat is performance, then prices will collapse. Unlike traditional cloud moats around state, operations, and capex management - I can host a model reliably with less than 30 minutes effort.

[DrScientist]

1,2,3 are dominated by platform stickness or even active lock-in.

Can't say I see the same advantages to stop you switching the model you use.

> It seems that enterprises will pay top dollar for service guarantees, integration, and someone they can sue.

Sure. Though it does depend on whether you need regular updates. If you want the model to be aware of the latest research - then fine. However it already does the job, you might prioritize stability over constant change.

> It's nobody gets fired for buying IBM all over again.

Except they when they did when IBM was no longer good value for money.

> but I don't see any historical analogues

None at all? You mentioned IBM - who is using AIX on IBM hardware in 2026? Who is using Solaris on Sun hardware? It's pretty much all gone to linux on commodity hardware.

Remember Netscape - thew browser company? Killed by Microsoft bundling of IE. How hard would it be for Apple to bundle GLM based services?

[23ff]

This thread is riddled with buzz words - you know what im talking about.

just stop lmao.

[woeirua]

There’s actually a strong case that agents will erode cloud providers’ margins because the lock in migration cost will be much lower in the future. No one ever migrated before because you’d spend $$$ to save $$ then the new vendor would gradually raise your rates negating the savings.

[dofm]

They may pay top dollar but there's all sorts of evidence that they'd very much like to pay radically fewer top dollars than the unsubsidised, off-plan price.

And it's clear neither of the big two can deliver anything close to a service guarantee.

[mountainofdeath]

Raw cloud computing costs have a fairly small margin over what they could be. Nobody with real purchasing power is paying anywhere near the listed retail rates. It's part of the reason smaller providers e.g. OVH, can remain quite competitive.

The other items have very strong lock-in and capture ecosytems. Microsoft Office is the first and only office suite anyone uses and its cheap enough for nobody to consider a real alternative. Microsoft could attempt to charge $10,000 a seat and while some will certainly stay, others would look for an alternative. But for just $10 a month, its a fair price to pay.

[yowlingcat]

I don't disagree with your conclusions (enterprises will pay top dollar for service guarantees, integration, and someone they can sue) but by that same logic there is no clear winner with Anthropic/OpenAI. Claude has a habit of going down on me when I need it most and seems to be struggling to even keep 3 nines of availability. They're actively hostile to integration and seem more convinced they should be suing others than behaving in a way that doesn't get them sued.

That's not to say I don't believe that there won't be a closed source correlate. I just don't know if OAI and Ant are all that exists.

[throwaway27448]

> Many open source office suites exist yet none compete with the ubiquity of gsuite or office

I think this is more about collaboration being hard to solve. Without collaboration gsuite/office offer nothing.

> 3. Both Windows and macOS dominate the home desktop space despite free alternatives existing for a long time.

Mac OS is free too, just free as in beer.

> It seems that enterprises will pay top dollar for service guarantees, integration, and someone they can sue.

In the grand scheme of things, american enterprise is filthy, filthy, filthy rich. I wouldn't imagine they're the best example of rational spenders.

[dante54]

Examples two and three largely persist due to massive vendor lock in after the vendor has done enough work to capture market share, but that does not seem to be the case for AI labs to my knowledge

[alightsoul]

. It seems that enterprises will pay top dollar for service guarantees, integration, and someone they can sue.

Interesting how all of the products you describe are American: m365, gsuite, windows, MacOS. It's not just about having someone to sue. You could sue collabora and canonical but they're not American. Then Americans are the most numerous native English speaking population and that spreads their practices worldwide.

[bitexploder]

When a hyperscaler is viewed as a software company their stock and value multiplier is much higher than if they are viewed as a commodity with expensive infrastructure costs. There is now not enough compute resources to serve demand. It requires sustained capital to grow compute resources. The costs are uncollapsing due to the overall demand plus the pressure of LLMs. Capital costs matter.

[torginus]

The biggest difference between the cloud and AI is that an AWS server might cost 10x of what you would pay for if you bought your own, the overall expenditure is still just a small fraction of the company budget.

In contrast, even companies who spend hundreds of thousands per employee feel the AI spend right now might be too much.

[petesergeant]

> It seems that enterprises will pay top dollar for service guarantees, integration, and someone they can sue.

Sure, but those are all things that can be trivially provided by a large inference company. In fact, I’d trust an AWS or Cerebras contract provisioning an open model before I’d trust an Anthropic or OpenAI one.

[flanked-evergl]

We will keep using Claude because internal choices made by engineers and internal gatekeeping by engineers make everything else unfeasible, and going back on that would require said engineers to admit that they did something stupid, so it's not likely to happen.

[rando77]

People might not want to be on update treadmill of proprietary weight models, for enterprise things. Things change a lot between models and they can't guarantee backwards compatibility like you can for deterministic software

[wonnage]

All the more reason to focus on those service guarantees, integration, and lawyers while making the underlying model easily swappable to whoever’s winning the frontier model involution battle at the moment

[Aissen]

> 1. Compute costs collapsed since the advent of Cloud and yet hyperscalers still have fat margins.

No, compute costs collapsed (before mid-2025) because of normal technological progress on all fronts of compute.

[smrtinsert]

The same critique of those points can be made which was in the article. The cost of switching is minimal.

This isn't SAP or a CRM or some other business where workflow = moat.

[WhereIsTheTruth]

Cost is a measure of scarcity

Once something is abundant, it's hard to justify extracting big margins from it

Which is why so much effort goes into manufacturing scarcity instead

[chvid]

Operating systems and office suites (like windows and word) have big network effects and high switching costs.

Much less with llm chatbots/coding tools.

[wangii]

good observation! however, I'd argue it's the distribution channel and installation friction did the job in the cases you mentioned.

given how easy it's to replace LLM API in claude code, and how easy it is to write a claude code clone with itself (Fable is pretty good!), the collapse is coming.

[lelanthran]

> I understand the arguments for a margin collapse, but I don't see any historical analogues.

How is this the top comment? It lists all the outliers and ignores thousands of instances where fat margins caused a collapse.

I mean, just what Linux did to the dozen or so fat-margin unix server companies is already a longer list of collapsed companies than provided in this comment.

[miki123211]

AI costs a lot more than all these, combined.

[thisisit]

You missed two things one, a consist thread across all your examples - every market ends with a duopoly along with smaller competitors and two, which of these industries started with multiple billion dollars companies competing with each other?

Even if your case is that two companies in the AI group are going to survive and those will have healthy margins, others are going to suffer and compete on price. So saying “AI margins are going to suffer” is a fair industry wide statement. Maybe it’s not Anthropic or OpenAI or whoever you are thinking of but surely for Gemini or xAI etc?

[Centigonal]

For 2 and 3, office software and OSs have strong network effects and up-stack effects, just like CPU instruction sets.

Also, I'm sorry, but OSS office suites compete with Office and GSuite the way grocery store frozen pizza competes with Domino's and Papa John's. Quality and completeness of execution matter a lot in that category.

[etdznots]

Lol, your example of the other side of grocery store pizza is Domino’s and Papa John’s?

I guess in offices where M$ products are used the people there think mmm yumm dominos and hold up their noses at digiornos lol.

[Centigonal]

That was intentional - I think Office (or, uh, Microsoft 365 Copilot as it is now called) is frustrating mass-market mediocre software! That said, it consistently lets me do my job, while LibreOffice is often unusable for my purposes.

[dakolli]

there's huge margins on GPU time, not tokens.

[coldtea]

GitHub, Slack, and Office have network effects and transition costs.

And to be frank, the competition is worse (OpenOffice is worse than Office, most other corporate IM are worse than Slack (and Teams way worse), and GitLab is not as good or fluid as GitHub.