Big Tech Struggles to Profit from AI Hype as Financials Show Disappointing Results

The emergence of generative artificial intelligence (AI) has raised concerns among experts regarding various issues, such as misinformation and the potential threat of superintelligence AI leading to human destruction. However, one crucial problem with AI, which has been overlooked by many, is now becoming evident and hindering its progress – the economics of scale. According to reports, leading tech companies are facing challenges in making their AI ventures profitable, despite the high level of consumer interest, due to the significant costs associated with maintaining operational AI products.

According to a report by The Wall Street Journal, the AI tools, which are unproven in terms of market sustainability, can be quite expensive to use because they require robust servers with expensive chips that consume a lot of power. Power-related costs in particular are very troublesome because AI does not work like other software products. Answering each query requires the AI to run a specific algorithm, which can consume more energy depending on the complexity of the query. This means that especially heavy users can make the company’s costs quite high.

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According to a report, Microsoft is losing a significant amount of money to GitHub Copilot, an artificial intelligence assistant that helps coders create, fix and compile code. More than 1.5 million users have used it so far, paying $10 per month for the service. However, the company is losing a whopping $20 per user per month, with some users paying the company as much as $80, the report cited unnamed sources.

Technology companies are trying to find a solution to the artificial intelligence problem

These are untested waters, so pricing issues were to be expected. However, it seems that the companies were not prepared for the costs to rise so high because, just like other software, they expected to generate profits as the subscribers to the service grow, but with AI, that is not possible, at least as long as the calculation is possible. remains energy efficient.

Still, companies are looking for their own unique ways to combat the situation. For example, Google and Microsoft have both developed services with artificial intelligence features for Microsoft 365 Office and Google Workspace. Both charge $30 per month for the service, while the non-AI counterpart costs $13 and $6 per month.

Microsoft and Google have resorted to raising the price, but Zoom, the video conferencing platform, has taken a different route. The company has several AI models to provide its features to users. For most tasks, such as summarizing meetings and writing chat messages, it uses low-cost, task-specific AI models, saving costs.

Adobe uses a refund system to prevent the company from incurring losses. Each user who has selected AI features will receive a fixed amount of credits that can be used to complete a survey and get it to help the user in a project. When everything is used up, the speed slows down significantly to discourage users. The same method is also used by Dall-E, Midjourney and Stable Diffusion.

“We’re trying to provide great value, but also protect ourselves on the cost side,” Adobe CEO Shantanu Narayen told the WSJ.

But if this trend continues and AI excitement doesn’t come with the returns investors are hoping for, a lot of venture capital money could disappear next year, affecting many startups and new-age companies.

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