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Top economist warns that the AI math doesn’t make sense: 'Profits are currently being funded by investors rather than earned from customers' (fortune.com)
submitted 2 days ago by to c/technology@lemmy.world
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[–] 5 points 2 days ago (2 children)

At least in the tech industry that doesn't apply if the investors believe that the technology or application is promising enough. Look at Uber's example. They lost very large amounts of money for many years before turning a profit. They were able to do this because the investors kept sustaining them through their unprofitable years.

The same thing has been happening for years with the AI companies. I heard a while back that OpenAI wouldn't turn a profit on their services even if they charged end users $100/month.

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  • [–] 3 points 1 day ago* (1 child)
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  • [–] 2 points 1 day ago (1 child)

    Good article, thanks! That provides better context for how the major AI companies' finances compare with Uber's, but I can't think of a better example to use for a company that operated at massive losses for many years due to being propped up by investors. If you have a better example I could use, I would be glad to do it. Otherwise, if this question comes up again in the context of AI, I'll be sure to include a link to that article.

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  • [–] 2 points 1 day ago* (1 child)

    There isn't a better example. This level of FOMO bullshit hasn't happened since the Dutch went bonkers over tulips.

    Chatbot labs have the worst unit economics of any companies in recent memory. They only reason they still have doors open is VC money & that is now drying up. Unlike Uber, they will never become profitable. That's why you are seeing the push to IPO so they can loot your retirement accounts via the stock market.

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  • [–] 3 points 1 day ago

    This level of FOMO bullshit hasn’t happened since the Dutch went bonkers over tulips.

    Haha, now that's a great comparison! I mentioned to a co-worker a couple weeks ago that we should get ready to invest in the next bubble coming up after this one pops, probably tulip bulbs (again).

    Good points, thanks.

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  • [–] 7 points 2 days ago (1 child)

    Uber is an example of government corruption leveraged to overthrow a market. The livery industry required special licensing, so only licensees were legally allowed to do it. Uber then started doing it without the $1 million per license overhead, bribed the government to ignore that, and naturally undercut their competitors that had huge government-imposed overheads that Uber didn't. They were initially unprofitable because they had to compete for business, then became profitable when the government helped then destroy their competitors and structure their pay so as to have no minimum wage.

    If you only look at modern examples, youre looking at a funhouse mirror reflection of real business operations. Running at a loss for a decade while you create a monopoly is the path to business success today, but this is not a functioning market. Real business success involves making money right out of the gate or at least right after. If your business only works if it is a near-monopoly, it is not a sound one.

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  • [–] 2 points 2 days ago* (1 child)

    I completely agree with your conclusion. Just to be clear, I was in no way saying that what Uber did and OpenAI does is OK. They both suck and should never be allowed to operate as they had and have. I don't know if Uber was government corruption though, at least I had never heard it described as such. What I have heard is that they found loopholes in taxi laws around the world and employed a global army of lawyers exploit those loopholes.

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  • [–] 4 points 2 days ago (1 child)

    At least in the USA, livery workers were required to have a "medallion", which is essentially an onerously expensive license with the stated purpose of restricting competition to the point of profitability for those workers. There was no loophole, and it was ridgidly enforced.

    Then, Uber came in and started violating that law so flagrantly that governments seemed stunned into inaction. The government corruption comes in where they then decided not to enforce those rules on Uber for some reason around the same time Uber aggressively contributed to political campaigns around the world.

    I went down this line of discussion to point out that Uber is not a good example of organic business success that started out financially underwater. Their ethics or lack of them is an aside to the discussion, but agreed, they are unrepentant scumbags.

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  • [–] 2 points 2 days ago

    Got it, thanks. My memory of how Uber was able to gain a foothold was a little different, but my memory of it was patchy anyway. My recollection was that they essentially said that Uber was not a taxi service. They sold it as just regular people offering to "share" a ride with someone else to an area that they were going to anyway. I have no doubt that heavy political contributions were part of their arsenal in their attack on the taxi industry and regulations, so I agree that this was government corruption. But I also recall that they also had armies of lawyers fighting at every level of government around the world to ram through the idea that this wasn't a taxi service and shouldn't be subject to taxi regulations. Maybe my memory is more patchy than I thought, or perhaps both things were true - government corruption and a legal war allowed them flourish.

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