It will be interesting to see how inelastic the demand for frontier tokens is.
- It will be interesting to see how inelastic the demand for frontier tokens is.
- The frontier models are already ludicrously overpowered for most tasks they're used for.
- If there's 100x excess quality for a given task, and they increase the price by 2x, then customers might go to the cheaper model.
- The value is created at the instant the token is burned.
- Once it's burned, all that is left is the durable output (e.g. code), but that can be used as inputs for any other model.
- That means that users can direct their incremental token burn to the highest bang for buck in that moment.
- Pricing power comes down to "how hard would it be to switch to a good enough alternative."
- That scales with stickiness and inversely with the quality of alternatives.
- Models have very little stickiness and also the alternatives are largely good enough for most workloads.
- This is one reason why model providers are desperately trying to move to harnesses that store state.