[impure-aqua]

Commoditizarion is a process, not a binary state.

If I run an oil refinery, my fractional distillation system needs to be reworked depending on the exact mixture of crude I'm taking as input. So there are still switching costs even in the textbook example of a commodity.

Crucially though the exact upstream I use has minimal impact on the downstream. Closer equivalents, say, another barrel of WTI grade crude from a nearby regional supplier, require extremely minimal reworking. Oil from a different region, that might require more retooling, so I might be willing to sustain a longer shock in market conditions before making that switch. The important thing is the output broadly remains the same, but even this is broad, e.g. a different mix of inputs yields different ratios of output.

LLMs are quite similar no? Maybe switching to another SOTA model has minimal reworking, as you can delegate at the same level of abstraction to the model, whereas switching to a slightly-behind-frontier model you need to do more hand holding. Switching costs being nonzero does not preclude them from being broadly an interchangeable input in the production process. Any non-frontier use (99% of SWE) will be delivered on pretty much the exact same timeline irrespective of which model was used, so my requisition process looks more like buying barrels of oil than e.g. shopping for a new phone.

[bluegatty]

Oil varies a bit but it's a commodity.

There are 3 SOTA model makers, and they have pricing power.

The 'switching costs' is not the issue so much as the inherent control over the commodity.

Think OPEC - when they acted as a cohort - they raised prices dramatically by having enough control to 'set prices'.

When OPEC lost it's pricing power ... nobody could set prices.

Fable is considerably better than GLM5 and it will have a strategic input - there is just hardly any substitute for it.

If these were cars - we'd just use whatever fuel.

But these are 'F1 races' - if you have some low grade 'dirty fuel' you will lose the race. You must have the 'top fuel'. There are 3 provides who implicitly collude and set prices.