August 20, 2025 • 41 mins
In part one of this week's two-part Better Offline, Ed Zitron walks you through how AI startups’ overstuffed valuations make them impossible targets for acquisition or IPO - and how this may cause lasting harm to Silicon Valley when the bubble bursts.
Better Offline listener deal: Get $15 Off Where's Your Ed At Premium! Deal goes until the end of August.
https://edzitronswheresyouredatghostio.outpost.pub/public/promo-subscription/better-offline-discount
YOU CAN NOW BUY BETTER OFFLINE MERCH! Go to https://cottonbureau.com/people/better-offline and use code FREE99 for free shipping on orders of $99 or more.
BUY A LIMITED EDITION BETTER OFFLINE CHALLENGE COIN! https://cottonbureau.com/p/XSH74N/challenge-coin/better-offline-challenge-coin#/29269226/gold-metal-1.75in
---
LINKS: https://www.tinyurl.com/betterofflinelinks
Newsletter: https://www.wheresyoured.at/
Reddit: https://www.reddit.com/r/BetterOffline/
Discord: chat.wheresyoured.at
Ed's Socials:
https://www.instagram.com/edzitron
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Also media, Hello and welcome to Better Offline. I'm, of
course your host ed zitron. As ever, go to the
episode notes and buy some merchandise. We have the Beautiful
(00:25):
challenge coin available until August twenty four. I want to say,
subscribe to my newsletter or send me a threatening email.
I love hearing from you all, and I also love
to see that our subreddit has gone over twelve thousand
vagabonds and scallywags. I'm so proud of our community. Anyway,
this week's going to be a fun one and two
part of plus a special report on GPT five, and
it's kind of a culmination of the last year and
a half of work that I've done covering the AI bubble. Now,
(00:48):
the reason I return to this subject so often is
because each week I've become more and more convinced that
the only way the AI bubble ends is well badly.
Every week I see more and more evidence that this
is structured in a way that is doomed when not
even abruptly, but they were going to be abrupt little farts,
little burps as the bubble begins letting out air, and
in a way where I see people in innovation as
(01:09):
the collateral damage in the global financial crisis. The Federal
Reserve and the US government, as well as other equivalents
around the world, work to ensure that when a bank
or hedge FuMB went under or a big insurance company
became insolvent, the collapse was managed in a way that
didn't implode the entire financial system. The difference with AI
is first that it's nowhere here as essential as financial
services to the global economy and thus unlikely to be
(01:32):
saved as AIG was in two thousand and eight, but
also that there's no real way for this to end gracefully,
just due to the way all of this is happening,
how it's built. I'll get into it, and all the
signs are now there, And I have been hesitant to
make this call the whole time. By the way, where well,
there's a contagion here, where one precarious company falls, the
(01:53):
rest eventually tumble, sparking a chain of events that will
be well, pretty bad. But how does this end? At
the start of August, we saw no less than three
different pieces, two in the Wall Street Journal and one
in the Financial Times, Financial Nacial Times, Who Cares, published
within the span of one week, all asking the same
question whether the massive proliferation of data centers is a
(02:14):
massive bubble, and honestly, since then there have been several more.
Although these publications at times seem to have taken the
default position of AI's inevitable value, they've begun to sour
on the idea that it's going to happen anytime soon.
To be clear, these are sensible, well respected business newspapers,
hardly partisan voices from the AI wars. Separately, CNBC reported
that quirked up three hundred cores and open ai is
(02:36):
either raised or is about to raise another eight point
three billion dollars in cash, less than two months since
it raised ten billion dollars from SoftBank and a selection
of other venture catital firms. While this sounds ambiguous, this
reporting only claims that it has secured that funding, not
that it's received it, which is an important distinction. I've
pointed out in the past that secured funding often comes
(02:57):
with its own conditions attached. On toime top of this,
I should add that there is currently a rumor that
open ai insiders, so the people working at the company,
are selling six billion dollars with stock at a five
hundred billion dollar valuation that's around the price of Netflix.
This is fucking stupid. It's so stupid, and every time
I read about it, I feel a little insane. But
(03:17):
it's also weird that you've got people like soft Bank
and Dragonea who invested in the eight point through billion
dollar round, who are also buying the stock. All this
sounds stinky and I hate to be crude. I hate
to be too crude here, But where the fuck is
all this money going. Is open ai just incinerating capital?
Is it compute? Is it salaries? Is it more compute?
Is it data centers? Because soft Bank isn't actually building
(03:40):
anything for stargate It's all okay, I calm down a
little bit, but it's all getting a little bit silly now.
The information, which has some of the best sourcing in
any publication covering the AI bubble, i'd argue, though I've
taken issues with their reporting in the past, suggested that
open ai intends to use this money to build data centers,
possibly the only worst investment it can make than general ivai,
(04:01):
and it's the one that open ai can't really avoid
because they're also somehow running out of compute two and
amongst this already ridiculous situation. Since the issue of open
Ai and Anthropic's actual revenues, which I wrote about my
premium newsletter on the first of August Please give Me Money,
and have roughly estimated to be five point twenty six
billion dollars in the case of open Ai and one
point five billion dollars in Anthropic as of July. Now,
(04:24):
to be clear, there are very different numbers going around.
Get to in a second. In any case, these estimates
were made based on both companies predilection for leaking their
annualized revenue or month times twelve. Now, this extremely annoying
term annualized or recurring revenue is one that I keep
bringing up because it's become the de facto wait for
GENERATIVEAI companies to express their revenue, and both open ai
(04:45):
and Anthropic leaking them intentionally and doing so in a
way that suggests that they're not even using the traditional
ways of calculating them. Because arr isn't in and of
itself an evil thing, it's fairly stand up within software
as a service companies, except they run completely different to
open ai and Anthropic anyway. Open ai leaked on July thirtieth,
(05:05):
twenty twenty five, that it was at twelve billion dollars
of annualized revenue, so it earned around eight hundred and
thirty three million dollars in some sort of thirty day period,
and then two days later, on August first, twenty twenty five,
the New York Times reported it was at thirteen billion
dollars annualized, at one point eight billion dollars of monthly revenue.
It's taking the pierce a little bit. It's very clear
(05:27):
open AI is not talking in actual calendar months, at
which point we can assume they're using like a trailing
thirty day window, as in the month is just thirty days,
rather than a calendar month like May or June or July.
We can, however, declaratively say that it's not saying the
month of June or the month of July was twelve
or thirteen billion dollars annualized, because if it was, they
(05:48):
wouldn't have given two vastly different goddamn numbers in the
same two day period. It doesn't make any sense. And
to be clear, while I can't say for certain, I
believe these leaks are deliberate. Open AI is timing matches
exactly with the fundraise. Similarly, on Anthropic side, these revenues
are beginning to get really, really weird. Anthropic went from
making around seventy two million dollars eight hundred and seventy
(06:08):
five million dollars annualized in January to four hundred and
thirty three million dollars in monthly revenue in July, or
at least it leaked on July first, twenty twenty five
that it was at four billion annuallyzed to the Information,
which is three hundred and thirty three million dollars, and
then claimed it had reached five billion annualized four hundred
and sixteen million to Bloomberg on July twenty ninth, twenty
twenty five. I'm so tired of this. Something stinky is happening.
(06:34):
The people who will not admit something stinky is happening,
I'm beginning to question their sanity or whether they're just
inherently corrupt in some way. And you can be corrupt
without money, you can just do it for your mates. Anyway.
How did Anthropic get there, I'm guessing it was from
cranking up prices on Cursor, a product made by a
company called any Sphere that lets developers generate code using
(06:55):
Anthropics models and other models, and we've had the confirmation
that's the case thanks to the Information reporting the one
point four billion dollars of the annualized revenue from Anthropic.
It's from its two top customers, so around one hundred
and sixteen million dollars in a month, and the biggest
of which is Cursor. Confusingly, the Information also says that
Anthropics Clad Code is generating nearly four hundred million dollars
in annualized revenue, roughly doubling from just a few weeks ago.
(07:17):
Per their report, it's around thirty three million dollars a
monthly revenue. They really jacked that product up. I need
to do a whole thing on glored code if I'm honest,
because that whole thing has become a complete nightmare. They've
had to completely the weekly rate limits are coming. God,
what a fucking mess. Every time I think about this
company get upset. In any case, I think Cursor is
(07:38):
a huge indicator of the current fragility of the bubble
and the fact that for most AI startups there's simply
no way out because being acquired or going public does
not appear to be a viable route. But before I explain,
please listen to one of the many stable, normal advertisers
that gives money to the show, not to me, though
I don't get the money from the ads. And we're back.
(08:09):
So how exactly is one AI powered coding environment such
a load bearing part of the AI trade. We're going
to be focusing now on both the fact that Cursor
is a systemic risk to the AI industry, one where
if it fails, could make every other player that bit
less secure, and the fact that Cursor is emblematic of
what makes general if AI companies so paradoxical, where you
can have bonkers valuations on one hand, but also no
(08:30):
way for these companies to go public or sell to
someone else and justified the actual valuation itself. I know
it sounds a little insane, but I believe that Cursor
is the weak point of the entire bubble, and I'm
going to explain why and how this could go. This
is by no means inevitable, but I cannot work out
what Cursor does other than this Cursor makes before at
(08:50):
least the massive changes to its service. Though Tom the
town over at Newcomer suggests that the revenue is still
going up. For now, they make about five hundred million
dollars in annualized revenue around forty two million dollars a month.
This makes it the single highest earning general IFAI company
that isn't called AI or Anthropic, and the highest learning
company built on top of primarily Anthropics models. Its success
(09:12):
is symbolic to the greater AI movement and just as
it hit its peak, Anthropic and open Ai to a
lesser extent, though they seem more interconnected. During GPT five's launch,
decided to add priority processing in priority service tiers, demanding
more money upfront and causing Cursor to have to massively
degrade its service to keep up. I also have a
premium piece that explains this from a few weeks go
(09:33):
within a monologue two and it's over at wezered dot app.
Please give me money to explain In short, curses AI
powered coding Editor used to have fairly unrestrained access to
the various models provided by companies like open Ai and Anthropic.
In mid June, a few weeks after Anthropic introduced priority
tiers that required enterprise companies to pay upfront and guarantee
(09:54):
a certain throughput of tokens and increase costs on prompt cashing,
which is a big part of AI coding. Curse mass
the change the amount its users could use its product
and introduce the two hundred dollars a month subscription. As
an aside to this, Anthropic also competes with Curser's AI
coding product with Clawed Code, its own service. I've talked
about it in the past, and I'll talk about it
some more in this series too. Cursor, as Anthropic's largest client,
(10:17):
the second being GitHub Copilot, represents a material part of
its revenue, and its surging popularity meant that it was
sending more and more revenue to Anthropic. Anthropic use this
opportunity to raise prices on accessing its models to continue
providing service at an acceptable level to Cursor's customers by
introducing priority toier access on May thirtieth, twenty twenty five.
(10:37):
This has allowed Anthropic to duce its revenues, and due
to the upfront nature of these contracts, Cursor is locked
in regardless of how well it does. The net result
of these cost increases means that Curser's product is less
attractive to its customers and will thus eventually make it
less money. At this point, one has to ask, how
does Cursor survive. Its product isn't profitable and the means
it used to make the company so successful have become untenable.
(11:00):
It is guaranteed a certain throughput of tokens per second
to the major model developers. Chief of the meanthropic. But
Cursor itself said in the whole Cursor Ultra two hundred
dollars a month thing that it signed multi year deals
with multiple cloud providers like open Ai, Xai and Google.
Cursor's product is now worse by the way. They also
have made it so the automodel that used to be
(11:21):
unlimited will now as of September fifteenth, charge a fee.
It's so fucking funny. I love this shit. It's so
funny watching this happen. But really, people are going to
cancel their subscriptions, their annualized revenue will drop, and their
ability to raise capital will suffer. As a direct result,
Cursor will, regardless of this drop in revenue, have to
pay the cloud companies what it owes them as if
it had the business it used to because it was
(11:43):
a guaranteed throughput. I've spoken to a few different people,
including a company with an enterprise contract, either planning to
cancel or trying to find a way out of their
agreements with Cursor, and they were planning to do so
as recently as April. I'm sorry recently as April. I
mean they were planning to do back in April, before
this shit happened. I'm not a here, you do understand anyway.
If Cursor is allowed to die, it will be unable
(12:04):
to pay a chunk of Anthropic and open AI's revenue,
and yes, the revenue of people like Xai in Google
as well. It also brings into question whether it's possible
to build, putting aside any questions of profitability, a business
of any kind offering services built on top of generative
AI models, and in turn bring into doubt the veracity
of investing in this sector writ large. It will also
call into question whether any other generativai company is a
(12:27):
real business. This will naturally lead to the question of
why we're building all these goddamn data centers. Cursor at
this point faces two options, die or get acquiet. This
is not an attack on anyone who works at the company,
nor anything personal. The unit economics of this business do
not make sense, and yet on some level. Its existence
is deeply important to the valley's future. And a large
(12:48):
chunk of anthropics revenue I should add, and Tom totan
over it, and Newcomer added something like ten percent of
anthropics revenue comes from Cursor. This is so bad, but
I'm gonna humor this. I'm gonna hue in this big time.
Who would actually acquire Cursor? Maybe open Ai, but they
couldn't acquire Windsurf for another AI company because they were
(13:10):
too worried that Microsoft was going to get the somehow
essential ip of what appears to be one of one
hundred different AI powered coding environments. They also already trade
and failed to buy Cursor. And if I'm honest, I
would not be surprised if Curser would sell.
Speaker 2 (13:23):
Now.
Speaker 1 (13:24):
I don't know if open ai has the money, but
you know they probably would sell. Honestly, Cursor fucked up
bad not selling to open Ai. They could have got
ten billion dollars in Sam Mortman would have had to
accelerate the funding clause. It would have been so goddamn sick.
But now the only sick here is Cursor's fragile, plagued
business model. But how about Anthropic. I don't know about
(13:45):
that one either. They've already got their own extremely expensive
coding environment, which I estimated in my premium newsletter loses
the company one hundred percent to ten thousand percent of
a subscript subscription per customer. That's like a monthly subscription
just from us. And they did that a few weeks ago.
And now Anthropic, as of August twenty eighth, is adding
weekly limits on accounts, which I believe creates some of
(14:07):
the most gnarly churn in SaaS history. It's going to
be quite nice. Also, does Anthropic really want to acquire
its largest customer also with more money. They're not raising
five billion dollars to bail out Cursor. Anthropic needs that
to feed directly into Andy Jesse's ass pocket to keep
offering increasingly more complex models that never quite seemed good
(14:29):
enough to make any money. But how about Google? They
know they just sort of bought Windsurf, but I'll get
it's a complete mess, and they can't do that again.
They've already given out the participation trophy multiple billions of
dollars to investors and founders, so nobody has to get
embarrassed about this. And then allowed Cognition to pick up
the scraps of a business that made six point eighty
(14:50):
three million dollars a month after burning one hundred and
forty three million of investor capital, and tech runch reports
that Windsurf was left for about one hundred million dollars
in cash post acquisition. Tech Crunch also reports that Cognition
paid about two hundred and fifty million dollars for what
remained of the company. Google paid like two point something
billion dollars to just take the founders, and Cognition picked
(15:12):
up the rest. And this deal, by the way, didn't
actually pay out the majority of Windsurf's employees. He I'll
have the links to the links to all of this
in the notes. This whole deal is real sickly though,
that the investors got paid out, the founders got paid out,
the employees got fugged. It really sucks. I'll get into
it in a bit, but let's go with meta. Here's
the thing. If I'm Michael Truell, the CEO of Cursor
(15:34):
of any Sphere, even I am calling Mark Zuckerberg, and
I'm pretending that I think the only person in the
world who can usher in superintelligence is the guy who
burned more than forty five billion dollars on the metaverse
and believes that not wearing AI glasses in the future
will be a disadvantage. I would say all manner of
shit about the future, and that the only way to
do this was to buy my AI powered coding startup
that literally cannot afford to exist. I would tell Zuckerberg anything.
(15:57):
I would be like, mate, I just watched the actual
star I think you're the people from Stargate. He's never
gonna watch Stargate. He's just gonna be like, whoa, yeah,
I've heard that's a TV show. Wow, A great. And
then you get however much money you need, just twenty
billion dollars, He'll just pull that out of his pocket.
He has it. He has twenty billion. He'll just handed
to you. He's probably got it in is like in
(16:18):
his safe. Just go and ask mine, how much money
do you think Mark Zuckerberg's got his safe? Email me,
email me with the guests. Anyway, This whole can't afford
to exist thing that really is the problem. These companies
are all going through the same motions that every company
before them did. Raise as much money as possible, get
as big as possible and eventually scale to the point
of the e fat with enterprise cash. Except the real
(16:40):
problem is that, just like the Big text New gluttony
of physical real estate, it's taken on general ifai company
is a burden with a constant aggressive form of cloud
damn the endless punishment of the costs for accessing the
API for general if ai models that always seem to
get a little bit better, but never in such a
way that anything really changes other than how much Anthropic
and open Ai are going to need at the end
(17:01):
of the month, or they break your startup's legs. I'm
not even trying to be funny. Anthropic raised its prices
on curses so severely it broke its already unprofitable business model.
These products, while also for the most part not producing
that much revenue, need to be sold with users being
aware of and or sensitive to the costs of providing them.
The Cursor's original product was a twenty dollars a month
service for five hundred fast requests of different models, in
(17:24):
the same way that accessing clawed code on any subscription
is either twenty one hundred or two hundred dollars a month.
Rather than paying per API cores, because these companies also
products that shield the customer from the actual costs of
running the services, and those costs could be vast. One article,
which I'll link to in the spreadsheet, argues that given
the trajectory of the development of AI models, it's not
unreasonable to imagine a full time engineer spending one hundred
(17:46):
thousand dollars in tokens each year per engineer. Just really
think about that for a second. I'll have the link
in there. It's fucking stupid. It's so fucking stupid, I
want to scream. And the irony is that, despite being
willing to kill these companies by fundamentally changing the terms
and put in which they access their models, Anthropic is
(18:06):
also in some way dependent on Cursor, Repler and other
similar firms continuing to buy tokens at the same rate
as before, as that consumption is baked into their own
arr figures, as well as the forward looking revenue projections
they've given to investors to convince them to give them
five billion dollars. It is, in some sense of Kobyashi
maru Anthropic is an existential need to screw over its
(18:29):
customers by hiking rates and imposing long term commitments, but
its existence is also in some way predicated on these
companies continuing to exist. If Cursor and Replit both die,
that's a significant chunk of anthropics API business gone, and
may I remind you that significantly overshadows its subscription business,
making it almost like an inverse of open AI, where
subscriptions drive the bulk of revenue, also a shitty business model.
(18:52):
Anthropic's future is wedded to Cursor, and I just don't
see how Cursor survives, let alone exists or gets subsumed
by another company in a way that mirrors our acquisitions
have worked since Ever, if Curser does not sell for
a healthy amount, I'm talking ten to twenty billion dollars,
and I mean actually sell, not the founders are hired
and a strange contractual agreement that pays out investors and
(19:13):
its assets are sold to Rick from porn Stars. It's pawn.
By the way, it will prove that no generative AI
company to this date has actually been successful in reality.
I expect a Chumley esque deal that helps CEO Michael
Truell by a Porsche while his staff makes nothing. It's
Cursor worth ten billion dollars or more. No, no matter
how good its product may or may not be, it
(19:33):
is not good enough to be sold at a price
that doesn't require Cursor to incinerate hundreds of millions of
dollars with no end in sight. And this ultimately gives
us a real conundrum. Why aren't generative AI startups selling
I'll tell you what, though, other people are selling stuff
and it's time for you to buy it. Listen to
these ads and let me know what you think at
my email address, which is Robert Evans app and we're back. So, really, though,
(20:02):
why are there so few generative AI acquisitions? I know
you're probably going to assume that there have been a
ton of them, right, if you've not been obsessively reading
every single story about that for over a year, you
might have missed it. Book before we go any further,
there have been some, but they've been sparse, and they
often have a weird structure. That's typically the exception, not
(20:24):
the rule in tech. So here's a real one. AMD
bought Silo AI, the largest private AI lab in Europe,
in August twenty twenty four, for six hundred and sixty
five million dollars, which appears to be the only real
acquisition in generative AI history and appears to be partially
based on Silo's use of AMD's GPUs Elsewhere, n Vidio
bought Octo AI for an estimated two hundred and fifty
(20:45):
million dollars in September twenty twenty four, after buying Brev
dot Dev in July twenty twenty four for an undisclosed sum,
and then Gretel in March twenty twenty five. Gretel, Brev
dot Dev, Octa AI. Jesus fucking Christ, these names be normal.
Be normal for one minute. Yeah. In all three cases,
these products are used to deploy generative AI and not
(21:05):
products built on top of generative AI or AI models.
Canva bought generative AI content and research company Leonardo dot
Ai in July twenty twenty four from this closed sum.
But that's small frame. Really. The only significant one I've
seen was on July twenty ninth, twenty twenty five, publicly
trained did customer service platform Nice buying AI powered customer
(21:27):
service company Cognigee in a nine hundred and fifty five
million dollar deal. I hate these names so much. According
to c X today, Cognitigi expects about eighty five million
dollars in revenue this year, though nobody appears to be
talking about how much it costs to make that revenue. However,
according to some sources, they judged tens of thousands or
hundreds of thousands of dollars per contract for their AI
(21:49):
voice agents that can understand and respond to user input
in a natural way. Great. Great, we've got one real
deal company built on models acquisition, and it's a company
that most people have heard of making around seven million
dollars a month. But let's take a look at the others.
So you probably remember Inflection AI to Microsoft, which was
not an acquisition but a six hundred and fifty million
dollar licensing deal that, according to Fast Company, may be
(22:12):
more like a billion dollars when you include things like
how much it paid to Inflection CEO and former DeepMind
co founded mister Foss Suleiman, who is most famous for
just being an abusive and horrible guy to work with.
Here he's pushing a horrifying nine ninety six culture and
Microsoft two to do what Muster Phi, You fucking prick. Anyway,
according to Fast Company, the deal involves a license to
(22:32):
sell Inflections models, a waiver against any employment claims against
inflection or Microsoft paying off investors in some sort of
unnamed compensation for employees. Sounds stinky to me, but let's
look at Twinsurf to Google and of course Cognition, which
was also not an acquisition. Windsurf c suite went to
Google for two point four billion dollars, which paid them
off along with their investors, and then the rest of
(22:53):
the staff and the product got acquired by Cognition for
two hundred and fifteen million dollars. According to tech Crunch,
investors made one point two billion dollars on the deal,
with Windsurf co founders Van Mahan and Douglas Chen making
another one point two billion dollars, and it's staff getting
to start a new job at a different company building
something else with According to tech Crunch, a large portion
of Windsurf's approximately two hundred and fifty employees not benefiting
(23:16):
from the deal as on the side Mahan and Chen
fucking suck. I fucking hate these guys, absolute loser psychopaths.
You make one point two billion dollars and you couldn't
break off a little bit from that, You fucking ah disgusting.
You can can't crack that two hundred billion. The point two.
You can take two hundred million dollars, share it with
the class. You fucking losers, assholes, pieces of shit. Come
(23:38):
on the show if you want to hear more words
like that, you fucking assholes. Anyway, let's talk about Ioproducts
going to open Ai in an all stock acquisition. This
dealers a fast and it's unclear of open Ai actually
bought anything six point four billion dollars in stock for what.
Johnny Ive's weird face staring at you lovingly as he
says things like I think we should make it look
like a circle while making a five million dollars a
(24:00):
year's salary. Get out of here. It's not real money.
And then, of course this character dot Ai to Google.
This was also not an acquisition. Google, to quote the
Wall Street Journal, paid two point seven billion dollars to
bring back an AI genius who quit in frustration. I
would not use the term genius. Well, I don't like
that term. Just to be clear, Shazir was one of
the authors of the original Attention is All You Need
(24:22):
paper that began the transformer based large language model era. Nevertheless,
much like Inflection, Google paid a licensing fee to character
dot Ai for its models and hired, according to the
information it's co founders and many of its engineers, creating
a fund that would pay out vesting shares as in
the shares you're given when you join a company that
you accrue over time as you work there until July
twenty twenty six. Anything after that you fugged. And now,
(24:45):
outside of one very industry specific acquisition, there just doesn't
seem to be an investor with the hunger to buy
a company like Cursor value that nine point nine billion
dollars or more if they raise another round, And you
have to ask why. If ai is has promised the
thing that will radically change our economy and these companies
are building the tools that will bring about that change,
(25:06):
why does nobody want to buy them? And in broader terms,
what does it mean when these companies, those with ten
billion dollars are, in the case of open Ai, three
hundred or even five hundred billion dollar valuations. What does
it mean when they can't be born and can't go public.
Where does all this go? What happens next? What's the
plan here? How will venture firms that plow billions of
(25:29):
dollars into these businesses bring a return for their LPs.
That's the limited partners who invest in the venture capitalists.
If there are no IBOs and no real buyouts, Sure
investors got paid in these deals, but these deals will
like pulling teeth. These are like if they do enough
of these, there will, even in this administration, be an
antitrust thing. Nevertheless, the economic implications of these questions are
(25:51):
quite frankly terrifying, especially when you consider the importance that
VC is historically held in building the US tech ecosystem,
And they raise further questions about the impact of an
AI bubble on companies that are promising and do have
a viable business model and a product with a natural fit,
but won't be able to raise any cash because everyone's
putting it into fucking AI. But ed great ed? What
if Cursor turns profitable? Now great awesome? I would believe
(26:15):
if it was possible, if it ever ever happened, which
it's not. I'm not even being sarcastic or rude. It's
just not happened. No company that actually stakes their entire
product and genera if AI appears to be able to
make a profit of any kind, glean a company that
makes the best eight point three million dollars a month,
one hundred million dollars an anionized revenue, said that it
had five hundred and fifty million dollars in cash in
(26:38):
December of last year, then raised one hundred and fifty
million dollars in June of this year. Where'd the money go?
Why does a generative search product with revenues that are
less than a third of the Cincinnati Reds baseball team
need a half billion dollars to make eight point three
billion dollar eight point three million dollars a month. Even
I'm not even saying these companies are unnecessary so much
as they may very well be impossible to run as
(26:59):
real bits businesses. This isn't even a qualitative judgment of
any one generative AI company. I'm just saying if any
of these were good businesses, they would be either profitable
or be acquired in actual deals, and there would also
be good businesses by now it is not early. That
argument is stupid. The amount of cash that these businesses
are burning does not suggest that they're rapidly approaching any
(27:20):
kind of sane burn rate, or we would have heard
putting aside any kind of skepticism. I have anything you
may hold against me for what I say or the
way I say it. I ask you this, where are
the profitable companies? Why isn't there one outside of the
companies creating training data or in Nvidia. We're three years
in and we haven't had one, one one of them,
(27:41):
one one. We've also had no real exits and no IPOs.
There's been no course for celebration, no validation of a
business model through another company deciding it was necessary to
continue its dominance by raising funds on the public market
or allowing actual investors thought they may be, to act
as a determiner of their value. I also will say
(28:01):
that very few, if not all, of these companies, they
would all just turn into a pillar of salt if
you made them fill out on S one, which is
the document to go public. It's also unclear what the
addition of windsurfs intellectual property actually adds the cognition, much
like it's a little unclear what differentiates cognitions so called
aipowered software engineered Devin from anything else on the market.
(28:22):
I had Goldman sachs Is paying for it and said
the stupidest shit I've ever heard, the CNBC that nevertheless
shows how little it's actually paying for. This is an
actual quote from an actual human being. We're going to
start augmenting our workforce with Devin, which is going to
be like our new employee, who's going to start doing
stuff on behalf of our developers are gent told CNBC
initially we will have hundreds of devons, and that might
(28:44):
go into the thousands depending on the use cases. Hundreds
of devons could mean hundreds of seats at are very optimistic,
five hundred users at the highest end possible at five
hundred dollars a month, and more than likely it's twenty
dollars a month. If not less. Let's assume that it
does discount an enterprise scale too, because that always happens.
It's about two hundred and fifty thousand dollars a month. Wow, Wow,
(29:07):
three million dollars a year in revenue on a trial
basis amazing. To be clear, it's probably far fewer seats
and far fewer dollars a month. I'm nothing if not
generous with my adversaries. In fact, I can't find a
shred of evidence that cognition actually makes money, despite currently
raising three hundred million dollars at a ten billion dollar valuation.
I can find no information about their revenues beyond one
(29:28):
comment from the information from July twenty twenty four, when
Cognition raised at a two billion dollar valuation. Cognitions fund
raises the latest example of AI startups raising capital sky
high valuations despite having little or no revenue. Cool In
a further move, per the Information that is both a
pale horse and a deeply scummy thing to do, Cognition
is now laid off thirty people from the Windsurf team
(29:49):
and is now offering the remaining two hundred buyouts equal
to nine months of salary, and I assume the end
of any chance to recruit further stock and Cognition CEO
Scott Woo said the following in an email, telling Windsurf
employer is about layoffs and buyouts. We don't believe in
work life balance building. The future of software engineering is
a mission we all care so deeply about that we
couldn't possibly separate the two. We know that not everyone
(30:09):
who joined Windsurf is signed up to join Cognition, where
we spent six days at the office in clock eighty
plus hour weeks. Fuck you man, fuck you. I'm sorry.
You shouldn't be proud of that, and all that pissed
vinegar and burning of the midnight oil does not appear
to have created a product that actually matters. I realized
that's a little cold. But if you're braying and smacking
your chest about your hard charging six days a week
(30:30):
office culture, you should be able to do better than
We have one publicly known customer and nobody knows our revenue.
Maybe it's a little simpler. Cognition may be paid two
hundred and fifty million dollars to acquire Windsurf so that
you could, after the transaction say that they had eighty
two million dollars in anualized revenue. If that's the case,
this is one of the dodgiest, weirdest acquisitions I've seen
in my life. Two founders getting what like a few
(30:51):
hundred million dollars between them and their investors, and a
few of their colleagues moving with them to Google, leaving
the rest of the staff effectively jobless or in hell
with little payoff for them time working at Windsurf. I
can only imagine how it must have felt to go
from being supposedly acquired by open Ai to this farcical
rich get rich of bullshit. It also suggests that the
actual underlying value of Windsurf's IP was around two hundred
(31:12):
and fifty million dollars. So I ask why exactly is
Cognition worth ten billion dollars? And why did it have
to raise three hundred million dollars after raising hundreds of
millions of dollars? According to Bloomberg in March, where is
the money going? Also doesn't seem to have revenue in general,
and Carl Brown of the Internet Bugs revealed the Cognition
(31:34):
faked the demo of Devin the AI powered software engineer
last year. And Devon doesn't even rank on swe benchmark,
the industry standard for model efficacy at coding tasks. Then, nevertheless,
why here is based entirely on one coding language. Ah,
we'll get to that another time. At best, Cognition has
now acquired their own nonprofitable coding environment and the smidgen
of revenue associated with them. How would Cognition go public?
(31:56):
What is the actual exit path for Cognition or any
other generative AI startup? Because really it comes down to
three things, get acquired, go public, or die. And that
right there is silicon Valley's own crisis their own housing crisis,
except instead of condo houses they can't afford with subprime
adjustable rate mortgages. Venture capitalists have invested in unprofitable, low
(32:17):
revenue startups with valuations that they can never sell at,
and like homeowners in the dismal years of two thousand
and eight and two thousand and nine, they're almost certainly underwater.
They just haven't realized it. Yeah, Where customers were unable
to refinance their mortgages to bring their monthly payments down, Generally,
of AI startups face pressure to continually raise higher and
higher evaluations to keep up with their costs, with each
(32:38):
one making it less likely that their company will sell
to someone else, by which I mean survive. The other
difference is that in the case of the housing crisis,
those who were able to hold onto their properties eventually
saw their acuity recover to pre crash levels. In part
because housing is essential and because its price is influenced
just as much by supply and demand as it is
the ability for people to finance the purchase of properties,
(33:00):
and when the population increases, so too does the demand
for housing. A house is a useful thing that you
could live in with wars and stuff. None of that
is true with AI. There is a finite amount of investors,
a finite number of companies, and the finite amount of capital.
And those companies are only as valuable as the expectations
their investors have for them, and as the broader sentiment
(33:20):
towards AI goes as well. Also, I should add, there
is only there don't appear to be that many business
models or different ones. There's so many different AI coding environments,
including ones made by these companies. Amazon has their own one,
now open Ai has codex. I mean, at some point
can all of these things last? And who is going
(33:42):
to buy Cognition? Because the only other opportunity for the
investors who put money into this company to make money here,
let alone recoup their initial investment, is for them to
go public. Do you think Cognition will go public? How
about Cursor? It's worth nine point nine billion dollars. There
was a rumor that was also raising an eighteen bigs
million and twenty billion dollars back in June. Do you
(34:02):
do you think that Cursor goes public or gets sold?
I mean maybe maybe one of these cells? Do you
see perplexity fucking perplexity at evaluation of eighteen plus billion
dollars selling to another company or going public. The alternative
has discussed is that perplexity a company, if with fifteen
million users and around five hundred and fifty million annualized revenue,
(34:24):
is still making less than half of the revenue. By
the way of the Cincinnati Reds baseball team, they're going
to go public. They're going to go public. Just to
be clear, the Reds make three hundred and twenty five
million dollars in a year. They're profitable, real money. How
is Perplexity, which is an inferior business to the Reds?
How are they meant to do that? They've at this
(34:45):
point raised over a billion dollars and they lost sixty
eight million dollars in twenty twenty four and thirty four
million dollars of revenue by comparison, By the way, the
Reds are a great business within their income of twenty
nine million dollars. Or to provide a service that upsets
and humiliates millions people from Ohio every year for the
pleasure of America, that's a great business. We should respect
(35:05):
the red So the Reds should be interviewed by Bloomberg.
We should have Elie de la Cruz talking every time
we hear from Sam Mortman. Just put Eli in there.
He'd be way more interesting and also works harder and
provides greater value as a business leader. Anyway, putting aside
the reds, what exactly is it that Perplexity could offer
to the public markets as a stock or to an acquirer.
(35:26):
Apple considered acquiring them back in June. But Apple tends
to acquire companies that wants to integrate into their core business,
as was the case with Siri, which makes me think
that Perplexity leaked that information about a deal that was
never really serious. Hell, Meta also talked about acquiring them too,
and again I would assume that Perplexity leaked. That isn't
it weird by the way that two different companies talked
about buying Perplexity but neither of them did so. CEO
(35:48):
Ara vince Rivenas said in July that he wanted to
remain independent, which is a weird thing to say after
talking to two giant, multi trillion dollar market cap tech
films about selling them to them, Like you see, to
not want to stay independent, why would you have the
conversation if you're you're just getting intel bullshit. It's almost
as if nobody wants to buy Perplexity, or that really
(36:09):
they don't want to buy any of these sham companies,
which I know sounds mean. But if you're worth tens
of billions or a billion dollars or anything over like
five hundred million dollars and you can't make more than
a bottom tier baseball team in fucking Ohio, you're neither
innovative nor deserving of said valuation. But really, my pissiness
and baseball comparisons aside, what exactly is the plan for
(36:30):
these goddamn companies. They don't make enough money to survive
without a continuous slow of venture capital, and they don't
seem to make impressive sums of money even when allowed
to burn as much as they'd like. These companies are
not being forced to live frugally, or at least have
yet to be made to, perhaps because they have all
actively engaged as at spending as much money as possible
and perceived of finding an idea that makes more money
than it loses. This is not a rational nor reasonable
(36:52):
way to proceed. Yes, there are startups that can justify
burning capital. Yes there are companies that have burned hundreds
of millions of dollars to find their business models, or
billions in the case of Uber. But none of these
companies are like those companies in the GENERATIVEAI space. GENERALFAI
businesses don't have the same economics, nor do they have
the same total addressable markets. Now, if you're gonna say
(37:13):
Amazon Web Services, there's a three part episode The Hater's
Guide to the AI Bubble that explains that, in detail,
I do voices, I have sources. You need to go
and listen to that. I'm fucking tired of hearing people
about this one. What about Uber? What about Aws? Yeah?
You got shit? That's all you've got. You certainly don't
have a company to point to. These startups are their
(37:34):
VC firm, subprime mortgages, overstuffed valuations, with no exit route
and no clear example of how to sell them or
who to sell them to. The closest they've got is
using GENERATIVEAI startups as beauty pageants for guys wearing Patagonia,
finding ways to pretend that the guy who runs an
AI startup sorry AI lab, is some sort of mysterious
genius versus just another founder and just another bubble with
(37:55):
just another overstuffed valuation. The literal only liquidity mechanism outside
of cognike that Generative AI has had so far is
selling AI talent to big tech a premium. Nobody has
gone or is going public, and if they're not going public,
the only route for these companies is to either become profitable,
which they haven't, or sell to somebody, which they're not.
But I'd be dancing around the real reason they won't
(38:17):
sell because fundamentally, generative AI does not let companies build
something new. Anyone that builds a generative AI product is
ultimately just prompting the model, albeit increasingly or complex ways,
at the scale of something like claud Code or though
anthropic as the advantage of being one of the main
veins of their infrastructure, or of course cursor. This means
that the generative AI company owns very few unique things
(38:38):
beyond their talent and will forever be at the mercy
of any and all decisions that their model provider makes,
such as increasing prices or creating competing products. I know
it sounds ludicrous, but this is the reality of these companies.
While there are some companies that have some unique training
and models and such. None of them seem to be
building interesting or unique products. Is a result if your
(38:58):
argument is that these things takes time? How long? No? Really,
so many of you have said this is what happens.
They burn a lot of money, they grow, and then
and then what you stop? Sure because the next thing
you say is term profitable by getting enterprise customers. Nobody
can do the first part, and for you can do
the second part in anything approaching a consistent fashion. But really,
how long should we give them? Three years? Perplexity has
(39:21):
had three years and a billion dollars. It doesn't seem
to be close to profitable. How long does Perplexity deserve
exactly four years? Five years an eternity. Every single example
of a company that's burned a lot of money and
then not done so in the end has been a
company with a physical thing or connections to the real world,
with the exception of Facebook, which has never had the
kind of cash burning monstrusity that General fai Is or
(39:42):
Meta has now created for no reason. There has never
been a software company that has just chewed through hundreds
of millions or billions of dollars and then suddenly become
profitable magically, mostly because the magical valuations of software have
been in their ability to transcend infrastructure once unit economics
in the sales of software like my Microsoft Office or
providing access to Instagram do not require the most powerful
(40:03):
graphics processing units run full tilt at all times, and
those are products that people like and want to use
every day, even though both of them seem to be
getting worse every minute. I get people saying that these
companies are in the growth stage, but when all of
them are unprofitable, and even the unprofitable ones outside of
open Ai and Anthropic aren't really making much money. Come on,
(40:24):
this isn't anything like any boom that leads to something
good or you saul or profitable, and it's because the
economics do not make sense. And that's before we get
into open Ai and Anthropic in the next episode. Thank
you for listening to Better Offline.
Speaker 2 (40:45):
The editor and composer of the Better Offline theme song
is Matasowski. You can check out more of his music
and audio projects at Matasowski dot com, m a ttoso
w Ski dot com. You can email me an easy
at better off line dot com or visit better Offline
dot com to find more podcast links, and of course
my newsletter. I also really recommend you go to chat
(41:07):
dot Where's youread dot at to visit the discord, and
go to our slash Better Offline to check out our reddit.
Speaker 1 (41:13):
Thank you so much for listening. Better Offline is a
production of cool Zone Media. For more from cool Zone Media,
visit our website cool Zonemedia dot com, or check us
out on the iHeartRadio app, Apple Podcasts, or wherever you
get your podcasts.
Also media, Hello and welcome to Better Offline. I'm, of
course your host ed zitron. As ever, go to the
episode notes and buy some merchandise. We have the Beautiful
(00:25):
challenge coin available until August twenty four. I want to say,
subscribe to my newsletter or send me a threatening email.
I love hearing from you all, and I also love
to see that our subreddit has gone over twelve thousand
vagabonds and scallywags. I'm so proud of our community. Anyway,
this week's going to be a fun one and two
part of plus a special report on GPT five, and
it's kind of a culmination of the last year and
a half of work that I've done covering the AI bubble. Now,
(00:48):
the reason I return to this subject so often is
because each week I've become more and more convinced that
the only way the AI bubble ends is well badly.
Every week I see more and more evidence that this
is structured in a way that is doomed when not
even abruptly, but they were going to be abrupt little farts,
little burps as the bubble begins letting out air, and
in a way where I see people in innovation as
(01:09):
the collateral damage in the global financial crisis. The Federal
Reserve and the US government, as well as other equivalents
around the world, work to ensure that when a bank
or hedge FuMB went under or a big insurance company
became insolvent, the collapse was managed in a way that
didn't implode the entire financial system. The difference with AI
is first that it's nowhere here as essential as financial
services to the global economy and thus unlikely to be
(01:32):
saved as AIG was in two thousand and eight, but
also that there's no real way for this to end gracefully,
just due to the way all of this is happening,
how it's built. I'll get into it, and all the
signs are now there, And I have been hesitant to
make this call the whole time. By the way, where well,
there's a contagion here, where one precarious company falls, the
(01:53):
rest eventually tumble, sparking a chain of events that will
be well, pretty bad. But how does this end? At
the start of August, we saw no less than three
different pieces, two in the Wall Street Journal and one
in the Financial Times, Financial Nacial Times, Who Cares, published
within the span of one week, all asking the same
question whether the massive proliferation of data centers is a
(02:14):
massive bubble, and honestly, since then there have been several more.
Although these publications at times seem to have taken the
default position of AI's inevitable value, they've begun to sour
on the idea that it's going to happen anytime soon.
To be clear, these are sensible, well respected business newspapers,
hardly partisan voices from the AI wars. Separately, CNBC reported
that quirked up three hundred cores and open ai is
(02:36):
either raised or is about to raise another eight point
three billion dollars in cash, less than two months since
it raised ten billion dollars from SoftBank and a selection
of other venture catital firms. While this sounds ambiguous, this
reporting only claims that it has secured that funding, not
that it's received it, which is an important distinction. I've
pointed out in the past that secured funding often comes
(02:57):
with its own conditions attached. On toime top of this,
I should add that there is currently a rumor that
open ai insiders, so the people working at the company,
are selling six billion dollars with stock at a five
hundred billion dollar valuation that's around the price of Netflix.
This is fucking stupid. It's so stupid, and every time
I read about it, I feel a little insane. But
(03:17):
it's also weird that you've got people like soft Bank
and Dragonea who invested in the eight point through billion
dollar round, who are also buying the stock. All this
sounds stinky and I hate to be crude. I hate
to be too crude here, But where the fuck is
all this money going. Is open ai just incinerating capital?
Is it compute? Is it salaries? Is it more compute?
Is it data centers? Because soft Bank isn't actually building
(03:40):
anything for stargate It's all okay, I calm down a
little bit, but it's all getting a little bit silly now.
The information, which has some of the best sourcing in
any publication covering the AI bubble, i'd argue, though I've
taken issues with their reporting in the past, suggested that
open ai intends to use this money to build data centers,
possibly the only worst investment it can make than general ivai,
(04:01):
and it's the one that open ai can't really avoid
because they're also somehow running out of compute two and
amongst this already ridiculous situation. Since the issue of open
Ai and Anthropic's actual revenues, which I wrote about my
premium newsletter on the first of August Please give Me Money,
and have roughly estimated to be five point twenty six
billion dollars in the case of open Ai and one
point five billion dollars in Anthropic as of July. Now,
(04:24):
to be clear, there are very different numbers going around.
Get to in a second. In any case, these estimates
were made based on both companies predilection for leaking their
annualized revenue or month times twelve. Now, this extremely annoying
term annualized or recurring revenue is one that I keep
bringing up because it's become the de facto wait for
GENERATIVEAI companies to express their revenue, and both open ai
(04:45):
and Anthropic leaking them intentionally and doing so in a
way that suggests that they're not even using the traditional
ways of calculating them. Because arr isn't in and of
itself an evil thing, it's fairly stand up within software
as a service companies, except they run completely different to
open ai and Anthropic anyway. Open ai leaked on July thirtieth,
(05:05):
twenty twenty five, that it was at twelve billion dollars
of annualized revenue, so it earned around eight hundred and
thirty three million dollars in some sort of thirty day period,
and then two days later, on August first, twenty twenty five,
the New York Times reported it was at thirteen billion
dollars annualized, at one point eight billion dollars of monthly revenue.
It's taking the pierce a little bit. It's very clear
(05:27):
open AI is not talking in actual calendar months, at
which point we can assume they're using like a trailing
thirty day window, as in the month is just thirty days,
rather than a calendar month like May or June or July.
We can, however, declaratively say that it's not saying the
month of June or the month of July was twelve
or thirteen billion dollars annualized, because if it was, they
(05:48):
wouldn't have given two vastly different goddamn numbers in the
same two day period. It doesn't make any sense. And
to be clear, while I can't say for certain, I
believe these leaks are deliberate. Open AI is timing matches
exactly with the fundraise. Similarly, on Anthropic side, these revenues
are beginning to get really, really weird. Anthropic went from
making around seventy two million dollars eight hundred and seventy
(06:08):
five million dollars annualized in January to four hundred and
thirty three million dollars in monthly revenue in July, or
at least it leaked on July first, twenty twenty five
that it was at four billion annuallyzed to the Information,
which is three hundred and thirty three million dollars, and
then claimed it had reached five billion annualized four hundred
and sixteen million to Bloomberg on July twenty ninth, twenty
twenty five. I'm so tired of this. Something stinky is happening.
(06:34):
The people who will not admit something stinky is happening,
I'm beginning to question their sanity or whether they're just
inherently corrupt in some way. And you can be corrupt
without money, you can just do it for your mates. Anyway.
How did Anthropic get there, I'm guessing it was from
cranking up prices on Cursor, a product made by a
company called any Sphere that lets developers generate code using
(06:55):
Anthropics models and other models, and we've had the confirmation
that's the case thanks to the Information reporting the one
point four billion dollars of the annualized revenue from Anthropic.
It's from its two top customers, so around one hundred
and sixteen million dollars in a month, and the biggest
of which is Cursor. Confusingly, the Information also says that
Anthropics Clad Code is generating nearly four hundred million dollars
in annualized revenue, roughly doubling from just a few weeks ago.
(07:17):
Per their report, it's around thirty three million dollars a
monthly revenue. They really jacked that product up. I need
to do a whole thing on glored code if I'm honest,
because that whole thing has become a complete nightmare. They've
had to completely the weekly rate limits are coming. God,
what a fucking mess. Every time I think about this
company get upset. In any case, I think Cursor is
(07:38):
a huge indicator of the current fragility of the bubble
and the fact that for most AI startups there's simply
no way out because being acquired or going public does
not appear to be a viable route. But before I explain,
please listen to one of the many stable, normal advertisers
that gives money to the show, not to me, though
I don't get the money from the ads. And we're back.
(08:09):
So how exactly is one AI powered coding environment such
a load bearing part of the AI trade. We're going
to be focusing now on both the fact that Cursor
is a systemic risk to the AI industry, one where
if it fails, could make every other player that bit
less secure, and the fact that Cursor is emblematic of
what makes general if AI companies so paradoxical, where you
can have bonkers valuations on one hand, but also no
(08:30):
way for these companies to go public or sell to
someone else and justified the actual valuation itself. I know
it sounds a little insane, but I believe that Cursor
is the weak point of the entire bubble, and I'm
going to explain why and how this could go. This
is by no means inevitable, but I cannot work out
what Cursor does other than this Cursor makes before at
(08:50):
least the massive changes to its service. Though Tom the
town over at Newcomer suggests that the revenue is still
going up. For now, they make about five hundred million
dollars in annualized revenue around forty two million dollars a month.
This makes it the single highest earning general IFAI company
that isn't called AI or Anthropic, and the highest learning
company built on top of primarily Anthropics models. Its success
(09:12):
is symbolic to the greater AI movement and just as
it hit its peak, Anthropic and open Ai to a
lesser extent, though they seem more interconnected. During GPT five's launch,
decided to add priority processing in priority service tiers, demanding
more money upfront and causing Cursor to have to massively
degrade its service to keep up. I also have a
premium piece that explains this from a few weeks go
(09:33):
within a monologue two and it's over at wezered dot app.
Please give me money to explain In short, curses AI
powered coding Editor used to have fairly unrestrained access to
the various models provided by companies like open Ai and Anthropic.
In mid June, a few weeks after Anthropic introduced priority
tiers that required enterprise companies to pay upfront and guarantee
(09:54):
a certain throughput of tokens and increase costs on prompt cashing,
which is a big part of AI coding. Curse mass
the change the amount its users could use its product
and introduce the two hundred dollars a month subscription. As
an aside to this, Anthropic also competes with Curser's AI
coding product with Clawed Code, its own service. I've talked
about it in the past, and I'll talk about it
some more in this series too. Cursor, as Anthropic's largest client,
(10:17):
the second being GitHub Copilot, represents a material part of
its revenue, and its surging popularity meant that it was
sending more and more revenue to Anthropic. Anthropic use this
opportunity to raise prices on accessing its models to continue
providing service at an acceptable level to Cursor's customers by
introducing priority toier access on May thirtieth, twenty twenty five.
(10:37):
This has allowed Anthropic to duce its revenues, and due
to the upfront nature of these contracts, Cursor is locked
in regardless of how well it does. The net result
of these cost increases means that Curser's product is less
attractive to its customers and will thus eventually make it
less money. At this point, one has to ask, how
does Cursor survive. Its product isn't profitable and the means
it used to make the company so successful have become untenable.
(11:00):
It is guaranteed a certain throughput of tokens per second
to the major model developers. Chief of the meanthropic. But
Cursor itself said in the whole Cursor Ultra two hundred
dollars a month thing that it signed multi year deals
with multiple cloud providers like open Ai, Xai and Google.
Cursor's product is now worse by the way. They also
have made it so the automodel that used to be
(11:21):
unlimited will now as of September fifteenth, charge a fee.
It's so fucking funny. I love this shit. It's so
funny watching this happen. But really, people are going to
cancel their subscriptions, their annualized revenue will drop, and their
ability to raise capital will suffer. As a direct result,
Cursor will, regardless of this drop in revenue, have to
pay the cloud companies what it owes them as if
it had the business it used to because it was
(11:43):
a guaranteed throughput. I've spoken to a few different people,
including a company with an enterprise contract, either planning to
cancel or trying to find a way out of their
agreements with Cursor, and they were planning to do so
as recently as April. I'm sorry recently as April. I
mean they were planning to do back in April, before
this shit happened. I'm not a here, you do understand anyway.
If Cursor is allowed to die, it will be unable
(12:04):
to pay a chunk of Anthropic and open AI's revenue,
and yes, the revenue of people like Xai in Google
as well. It also brings into question whether it's possible
to build, putting aside any questions of profitability, a business
of any kind offering services built on top of generative
AI models, and in turn bring into doubt the veracity
of investing in this sector writ large. It will also
call into question whether any other generativai company is a
(12:27):
real business. This will naturally lead to the question of
why we're building all these goddamn data centers. Cursor at
this point faces two options, die or get acquiet. This
is not an attack on anyone who works at the company,
nor anything personal. The unit economics of this business do
not make sense, and yet on some level. Its existence
is deeply important to the valley's future. And a large
(12:48):
chunk of anthropics revenue I should add, and Tom totan
over it, and Newcomer added something like ten percent of
anthropics revenue comes from Cursor. This is so bad, but
I'm gonna humor this. I'm gonna hue in this big time.
Who would actually acquire Cursor? Maybe open Ai, but they
couldn't acquire Windsurf for another AI company because they were
(13:10):
too worried that Microsoft was going to get the somehow
essential ip of what appears to be one of one
hundred different AI powered coding environments. They also already trade
and failed to buy Cursor. And if I'm honest, I
would not be surprised if Curser would sell.
Speaker 2 (13:23):
Now.
Speaker 1 (13:24):
I don't know if open ai has the money, but
you know they probably would sell. Honestly, Cursor fucked up
bad not selling to open Ai. They could have got
ten billion dollars in Sam Mortman would have had to
accelerate the funding clause. It would have been so goddamn sick.
But now the only sick here is Cursor's fragile, plagued
business model. But how about Anthropic. I don't know about
(13:45):
that one either. They've already got their own extremely expensive
coding environment, which I estimated in my premium newsletter loses
the company one hundred percent to ten thousand percent of
a subscript subscription per customer. That's like a monthly subscription
just from us. And they did that a few weeks ago.
And now Anthropic, as of August twenty eighth, is adding
weekly limits on accounts, which I believe creates some of
(14:07):
the most gnarly churn in SaaS history. It's going to
be quite nice. Also, does Anthropic really want to acquire
its largest customer also with more money. They're not raising
five billion dollars to bail out Cursor. Anthropic needs that
to feed directly into Andy Jesse's ass pocket to keep
offering increasingly more complex models that never quite seemed good
(14:29):
enough to make any money. But how about Google? They
know they just sort of bought Windsurf, but I'll get
it's a complete mess, and they can't do that again.
They've already given out the participation trophy multiple billions of
dollars to investors and founders, so nobody has to get
embarrassed about this. And then allowed Cognition to pick up
the scraps of a business that made six point eighty
(14:50):
three million dollars a month after burning one hundred and
forty three million of investor capital, and tech runch reports
that Windsurf was left for about one hundred million dollars
in cash post acquisition. Tech Crunch also reports that Cognition
paid about two hundred and fifty million dollars for what
remained of the company. Google paid like two point something
billion dollars to just take the founders, and Cognition picked
(15:12):
up the rest. And this deal, by the way, didn't
actually pay out the majority of Windsurf's employees. He I'll
have the links to the links to all of this
in the notes. This whole deal is real sickly though,
that the investors got paid out, the founders got paid out,
the employees got fugged. It really sucks. I'll get into
it in a bit, but let's go with meta. Here's
the thing. If I'm Michael Truell, the CEO of Cursor
(15:34):
of any Sphere, even I am calling Mark Zuckerberg, and
I'm pretending that I think the only person in the
world who can usher in superintelligence is the guy who
burned more than forty five billion dollars on the metaverse
and believes that not wearing AI glasses in the future
will be a disadvantage. I would say all manner of
shit about the future, and that the only way to
do this was to buy my AI powered coding startup
that literally cannot afford to exist. I would tell Zuckerberg anything.
(15:57):
I would be like, mate, I just watched the actual
star I think you're the people from Stargate. He's never
gonna watch Stargate. He's just gonna be like, whoa, yeah,
I've heard that's a TV show. Wow, A great. And
then you get however much money you need, just twenty
billion dollars, He'll just pull that out of his pocket.
He has it. He has twenty billion. He'll just handed
to you. He's probably got it in is like in
(16:18):
his safe. Just go and ask mine, how much money
do you think Mark Zuckerberg's got his safe? Email me,
email me with the guests. Anyway, This whole can't afford
to exist thing that really is the problem. These companies
are all going through the same motions that every company
before them did. Raise as much money as possible, get
as big as possible and eventually scale to the point
of the e fat with enterprise cash. Except the real
(16:40):
problem is that, just like the Big text New gluttony
of physical real estate, it's taken on general ifai company
is a burden with a constant aggressive form of cloud
damn the endless punishment of the costs for accessing the
API for general if ai models that always seem to
get a little bit better, but never in such a
way that anything really changes other than how much Anthropic
and open Ai are going to need at the end
(17:01):
of the month, or they break your startup's legs. I'm
not even trying to be funny. Anthropic raised its prices
on curses so severely it broke its already unprofitable business model.
These products, while also for the most part not producing
that much revenue, need to be sold with users being
aware of and or sensitive to the costs of providing them.
The Cursor's original product was a twenty dollars a month
service for five hundred fast requests of different models, in
(17:24):
the same way that accessing clawed code on any subscription
is either twenty one hundred or two hundred dollars a month.
Rather than paying per API cores, because these companies also
products that shield the customer from the actual costs of
running the services, and those costs could be vast. One article,
which I'll link to in the spreadsheet, argues that given
the trajectory of the development of AI models, it's not
unreasonable to imagine a full time engineer spending one hundred
(17:46):
thousand dollars in tokens each year per engineer. Just really
think about that for a second. I'll have the link
in there. It's fucking stupid. It's so fucking stupid, I
want to scream. And the irony is that, despite being
willing to kill these companies by fundamentally changing the terms
and put in which they access their models, Anthropic is
(18:06):
also in some way dependent on Cursor, Repler and other
similar firms continuing to buy tokens at the same rate
as before, as that consumption is baked into their own
arr figures, as well as the forward looking revenue projections
they've given to investors to convince them to give them
five billion dollars. It is, in some sense of Kobyashi
maru Anthropic is an existential need to screw over its
(18:29):
customers by hiking rates and imposing long term commitments, but
its existence is also in some way predicated on these
companies continuing to exist. If Cursor and Replit both die,
that's a significant chunk of anthropics API business gone, and
may I remind you that significantly overshadows its subscription business,
making it almost like an inverse of open AI, where
subscriptions drive the bulk of revenue, also a shitty business model.
(18:52):
Anthropic's future is wedded to Cursor, and I just don't
see how Cursor survives, let alone exists or gets subsumed
by another company in a way that mirrors our acquisitions
have worked since Ever, if Curser does not sell for
a healthy amount, I'm talking ten to twenty billion dollars,
and I mean actually sell, not the founders are hired
and a strange contractual agreement that pays out investors and
(19:13):
its assets are sold to Rick from porn Stars. It's pawn.
By the way, it will prove that no generative AI
company to this date has actually been successful in reality.
I expect a Chumley esque deal that helps CEO Michael
Truell by a Porsche while his staff makes nothing. It's
Cursor worth ten billion dollars or more. No, no matter
how good its product may or may not be, it
(19:33):
is not good enough to be sold at a price
that doesn't require Cursor to incinerate hundreds of millions of
dollars with no end in sight. And this ultimately gives
us a real conundrum. Why aren't generative AI startups selling
I'll tell you what, though, other people are selling stuff
and it's time for you to buy it. Listen to
these ads and let me know what you think at
my email address, which is Robert Evans app and we're back. So, really, though,
(20:02):
why are there so few generative AI acquisitions? I know
you're probably going to assume that there have been a
ton of them, right, if you've not been obsessively reading
every single story about that for over a year, you
might have missed it. Book before we go any further,
there have been some, but they've been sparse, and they
often have a weird structure. That's typically the exception, not
(20:24):
the rule in tech. So here's a real one. AMD
bought Silo AI, the largest private AI lab in Europe,
in August twenty twenty four, for six hundred and sixty
five million dollars, which appears to be the only real
acquisition in generative AI history and appears to be partially
based on Silo's use of AMD's GPUs Elsewhere, n Vidio
bought Octo AI for an estimated two hundred and fifty
(20:45):
million dollars in September twenty twenty four, after buying Brev
dot Dev in July twenty twenty four for an undisclosed sum,
and then Gretel in March twenty twenty five. Gretel, Brev
dot Dev, Octa AI. Jesus fucking Christ, these names be normal.
Be normal for one minute. Yeah. In all three cases,
these products are used to deploy generative AI and not
(21:05):
products built on top of generative AI or AI models.
Canva bought generative AI content and research company Leonardo dot
Ai in July twenty twenty four from this closed sum.
But that's small frame. Really. The only significant one I've
seen was on July twenty ninth, twenty twenty five, publicly
trained did customer service platform Nice buying AI powered customer
(21:27):
service company Cognigee in a nine hundred and fifty five
million dollar deal. I hate these names so much. According
to c X today, Cognitigi expects about eighty five million
dollars in revenue this year, though nobody appears to be
talking about how much it costs to make that revenue. However,
according to some sources, they judged tens of thousands or
hundreds of thousands of dollars per contract for their AI
(21:49):
voice agents that can understand and respond to user input
in a natural way. Great. Great, we've got one real
deal company built on models acquisition, and it's a company
that most people have heard of making around seven million
dollars a month. But let's take a look at the others.
So you probably remember Inflection AI to Microsoft, which was
not an acquisition but a six hundred and fifty million
dollar licensing deal that, according to Fast Company, may be
(22:12):
more like a billion dollars when you include things like
how much it paid to Inflection CEO and former DeepMind
co founded mister Foss Suleiman, who is most famous for
just being an abusive and horrible guy to work with.
Here he's pushing a horrifying nine ninety six culture and
Microsoft two to do what Muster Phi, You fucking prick. Anyway,
according to Fast Company, the deal involves a license to
(22:32):
sell Inflections models, a waiver against any employment claims against
inflection or Microsoft paying off investors in some sort of
unnamed compensation for employees. Sounds stinky to me, but let's
look at Twinsurf to Google and of course Cognition, which
was also not an acquisition. Windsurf c suite went to
Google for two point four billion dollars, which paid them
off along with their investors, and then the rest of
(22:53):
the staff and the product got acquired by Cognition for
two hundred and fifteen million dollars. According to tech Crunch,
investors made one point two billion dollars on the deal,
with Windsurf co founders Van Mahan and Douglas Chen making
another one point two billion dollars, and it's staff getting
to start a new job at a different company building
something else with According to tech Crunch, a large portion
of Windsurf's approximately two hundred and fifty employees not benefiting
(23:16):
from the deal as on the side Mahan and Chen
fucking suck. I fucking hate these guys, absolute loser psychopaths.
You make one point two billion dollars and you couldn't
break off a little bit from that, You fucking ah disgusting.
You can can't crack that two hundred billion. The point two.
You can take two hundred million dollars, share it with
the class. You fucking losers, assholes, pieces of shit. Come
(23:38):
on the show if you want to hear more words
like that, you fucking assholes. Anyway, let's talk about Ioproducts
going to open Ai in an all stock acquisition. This
dealers a fast and it's unclear of open Ai actually
bought anything six point four billion dollars in stock for what.
Johnny Ive's weird face staring at you lovingly as he
says things like I think we should make it look
like a circle while making a five million dollars a
(24:00):
year's salary. Get out of here. It's not real money.
And then, of course this character dot Ai to Google.
This was also not an acquisition. Google, to quote the
Wall Street Journal, paid two point seven billion dollars to
bring back an AI genius who quit in frustration. I
would not use the term genius. Well, I don't like
that term. Just to be clear, Shazir was one of
the authors of the original Attention is All You Need
(24:22):
paper that began the transformer based large language model era. Nevertheless,
much like Inflection, Google paid a licensing fee to character
dot Ai for its models and hired, according to the
information it's co founders and many of its engineers, creating
a fund that would pay out vesting shares as in
the shares you're given when you join a company that
you accrue over time as you work there until July
twenty twenty six. Anything after that you fugged. And now,
(24:45):
outside of one very industry specific acquisition, there just doesn't
seem to be an investor with the hunger to buy
a company like Cursor value that nine point nine billion
dollars or more if they raise another round, And you
have to ask why. If ai is has promised the
thing that will radically change our economy and these companies
are building the tools that will bring about that change,
(25:06):
why does nobody want to buy them? And in broader terms,
what does it mean when these companies, those with ten
billion dollars are, in the case of open Ai, three
hundred or even five hundred billion dollar valuations. What does
it mean when they can't be born and can't go public.
Where does all this go? What happens next? What's the
plan here? How will venture firms that plow billions of
(25:29):
dollars into these businesses bring a return for their LPs.
That's the limited partners who invest in the venture capitalists.
If there are no IBOs and no real buyouts, Sure
investors got paid in these deals, but these deals will
like pulling teeth. These are like if they do enough
of these, there will, even in this administration, be an
antitrust thing. Nevertheless, the economic implications of these questions are
(25:51):
quite frankly terrifying, especially when you consider the importance that
VC is historically held in building the US tech ecosystem,
And they raise further questions about the impact of an
AI bubble on companies that are promising and do have
a viable business model and a product with a natural fit,
but won't be able to raise any cash because everyone's
putting it into fucking AI. But ed great ed? What
if Cursor turns profitable? Now great awesome? I would believe
(26:15):
if it was possible, if it ever ever happened, which
it's not. I'm not even being sarcastic or rude. It's
just not happened. No company that actually stakes their entire
product and genera if AI appears to be able to
make a profit of any kind, glean a company that
makes the best eight point three million dollars a month,
one hundred million dollars an anionized revenue, said that it
had five hundred and fifty million dollars in cash in
(26:38):
December of last year, then raised one hundred and fifty
million dollars in June of this year. Where'd the money go?
Why does a generative search product with revenues that are
less than a third of the Cincinnati Reds baseball team
need a half billion dollars to make eight point three
billion dollar eight point three million dollars a month. Even
I'm not even saying these companies are unnecessary so much
as they may very well be impossible to run as
(26:59):
real bits businesses. This isn't even a qualitative judgment of
any one generative AI company. I'm just saying if any
of these were good businesses, they would be either profitable
or be acquired in actual deals, and there would also
be good businesses by now it is not early. That
argument is stupid. The amount of cash that these businesses
are burning does not suggest that they're rapidly approaching any
(27:20):
kind of sane burn rate, or we would have heard
putting aside any kind of skepticism. I have anything you
may hold against me for what I say or the
way I say it. I ask you this, where are
the profitable companies? Why isn't there one outside of the
companies creating training data or in Nvidia. We're three years
in and we haven't had one, one one of them,
(27:41):
one one. We've also had no real exits and no IPOs.
There's been no course for celebration, no validation of a
business model through another company deciding it was necessary to
continue its dominance by raising funds on the public market
or allowing actual investors thought they may be, to act
as a determiner of their value. I also will say
(28:01):
that very few, if not all, of these companies, they
would all just turn into a pillar of salt if
you made them fill out on S one, which is
the document to go public. It's also unclear what the
addition of windsurfs intellectual property actually adds the cognition, much
like it's a little unclear what differentiates cognitions so called
aipowered software engineered Devin from anything else on the market.
(28:22):
I had Goldman sachs Is paying for it and said
the stupidest shit I've ever heard, the CNBC that nevertheless
shows how little it's actually paying for. This is an
actual quote from an actual human being. We're going to
start augmenting our workforce with Devin, which is going to
be like our new employee, who's going to start doing
stuff on behalf of our developers are gent told CNBC
initially we will have hundreds of devons, and that might
(28:44):
go into the thousands depending on the use cases. Hundreds
of devons could mean hundreds of seats at are very optimistic,
five hundred users at the highest end possible at five
hundred dollars a month, and more than likely it's twenty
dollars a month. If not less. Let's assume that it
does discount an enterprise scale too, because that always happens.
It's about two hundred and fifty thousand dollars a month. Wow, Wow,
(29:07):
three million dollars a year in revenue on a trial
basis amazing. To be clear, it's probably far fewer seats
and far fewer dollars a month. I'm nothing if not
generous with my adversaries. In fact, I can't find a
shred of evidence that cognition actually makes money, despite currently
raising three hundred million dollars at a ten billion dollar valuation.
I can find no information about their revenues beyond one
(29:28):
comment from the information from July twenty twenty four, when
Cognition raised at a two billion dollar valuation. Cognitions fund
raises the latest example of AI startups raising capital sky
high valuations despite having little or no revenue. Cool In
a further move, per the Information that is both a
pale horse and a deeply scummy thing to do, Cognition
is now laid off thirty people from the Windsurf team
(29:49):
and is now offering the remaining two hundred buyouts equal
to nine months of salary, and I assume the end
of any chance to recruit further stock and Cognition CEO
Scott Woo said the following in an email, telling Windsurf
employer is about layoffs and buyouts. We don't believe in
work life balance building. The future of software engineering is
a mission we all care so deeply about that we
couldn't possibly separate the two. We know that not everyone
(30:09):
who joined Windsurf is signed up to join Cognition, where
we spent six days at the office in clock eighty
plus hour weeks. Fuck you man, fuck you. I'm sorry.
You shouldn't be proud of that, and all that pissed
vinegar and burning of the midnight oil does not appear
to have created a product that actually matters. I realized
that's a little cold. But if you're braying and smacking
your chest about your hard charging six days a week
(30:30):
office culture, you should be able to do better than
We have one publicly known customer and nobody knows our revenue.
Maybe it's a little simpler. Cognition may be paid two
hundred and fifty million dollars to acquire Windsurf so that
you could, after the transaction say that they had eighty
two million dollars in anualized revenue. If that's the case,
this is one of the dodgiest, weirdest acquisitions I've seen
in my life. Two founders getting what like a few
(30:51):
hundred million dollars between them and their investors, and a
few of their colleagues moving with them to Google, leaving
the rest of the staff effectively jobless or in hell
with little payoff for them time working at Windsurf. I
can only imagine how it must have felt to go
from being supposedly acquired by open Ai to this farcical
rich get rich of bullshit. It also suggests that the
actual underlying value of Windsurf's IP was around two hundred
(31:12):
and fifty million dollars. So I ask why exactly is
Cognition worth ten billion dollars? And why did it have
to raise three hundred million dollars after raising hundreds of
millions of dollars? According to Bloomberg in March, where is
the money going? Also doesn't seem to have revenue in general,
and Carl Brown of the Internet Bugs revealed the Cognition
(31:34):
faked the demo of Devin the AI powered software engineer
last year. And Devon doesn't even rank on swe benchmark,
the industry standard for model efficacy at coding tasks. Then, nevertheless,
why here is based entirely on one coding language. Ah,
we'll get to that another time. At best, Cognition has
now acquired their own nonprofitable coding environment and the smidgen
of revenue associated with them. How would Cognition go public?
(31:56):
What is the actual exit path for Cognition or any
other generative AI startup? Because really it comes down to
three things, get acquired, go public, or die. And that
right there is silicon Valley's own crisis their own housing crisis,
except instead of condo houses they can't afford with subprime
adjustable rate mortgages. Venture capitalists have invested in unprofitable, low
(32:17):
revenue startups with valuations that they can never sell at,
and like homeowners in the dismal years of two thousand
and eight and two thousand and nine, they're almost certainly underwater.
They just haven't realized it. Yeah, Where customers were unable
to refinance their mortgages to bring their monthly payments down, Generally,
of AI startups face pressure to continually raise higher and
higher evaluations to keep up with their costs, with each
(32:38):
one making it less likely that their company will sell
to someone else, by which I mean survive. The other
difference is that in the case of the housing crisis,
those who were able to hold onto their properties eventually
saw their acuity recover to pre crash levels. In part
because housing is essential and because its price is influenced
just as much by supply and demand as it is
the ability for people to finance the purchase of properties,
(33:00):
and when the population increases, so too does the demand
for housing. A house is a useful thing that you
could live in with wars and stuff. None of that
is true with AI. There is a finite amount of investors,
a finite number of companies, and the finite amount of capital.
And those companies are only as valuable as the expectations
their investors have for them, and as the broader sentiment
(33:20):
towards AI goes as well. Also, I should add, there
is only there don't appear to be that many business
models or different ones. There's so many different AI coding environments,
including ones made by these companies. Amazon has their own one,
now open Ai has codex. I mean, at some point
can all of these things last? And who is going
(33:42):
to buy Cognition? Because the only other opportunity for the
investors who put money into this company to make money here,
let alone recoup their initial investment, is for them to
go public. Do you think Cognition will go public? How
about Cursor? It's worth nine point nine billion dollars. There
was a rumor that was also raising an eighteen bigs
million and twenty billion dollars back in June. Do you
(34:02):
do you think that Cursor goes public or gets sold?
I mean maybe maybe one of these cells? Do you
see perplexity fucking perplexity at evaluation of eighteen plus billion
dollars selling to another company or going public. The alternative
has discussed is that perplexity a company, if with fifteen
million users and around five hundred and fifty million annualized revenue,
(34:24):
is still making less than half of the revenue. By
the way of the Cincinnati Reds baseball team, they're going
to go public. They're going to go public. Just to
be clear, the Reds make three hundred and twenty five
million dollars in a year. They're profitable, real money. How
is Perplexity, which is an inferior business to the Reds?
How are they meant to do that? They've at this
(34:45):
point raised over a billion dollars and they lost sixty
eight million dollars in twenty twenty four and thirty four
million dollars of revenue by comparison, By the way, the
Reds are a great business within their income of twenty
nine million dollars. Or to provide a service that upsets
and humiliates millions people from Ohio every year for the
pleasure of America, that's a great business. We should respect
(35:05):
the red So the Reds should be interviewed by Bloomberg.
We should have Elie de la Cruz talking every time
we hear from Sam Mortman. Just put Eli in there.
He'd be way more interesting and also works harder and
provides greater value as a business leader. Anyway, putting aside
the reds, what exactly is it that Perplexity could offer
to the public markets as a stock or to an acquirer.
(35:26):
Apple considered acquiring them back in June. But Apple tends
to acquire companies that wants to integrate into their core business,
as was the case with Siri, which makes me think
that Perplexity leaked that information about a deal that was
never really serious. Hell, Meta also talked about acquiring them too,
and again I would assume that Perplexity leaked. That isn't
it weird by the way that two different companies talked
about buying Perplexity but neither of them did so. CEO
(35:48):
Ara vince Rivenas said in July that he wanted to
remain independent, which is a weird thing to say after
talking to two giant, multi trillion dollar market cap tech
films about selling them to them, Like you see, to
not want to stay independent, why would you have the
conversation if you're you're just getting intel bullshit. It's almost
as if nobody wants to buy Perplexity, or that really
(36:09):
they don't want to buy any of these sham companies,
which I know sounds mean. But if you're worth tens
of billions or a billion dollars or anything over like
five hundred million dollars and you can't make more than
a bottom tier baseball team in fucking Ohio, you're neither
innovative nor deserving of said valuation. But really, my pissiness
and baseball comparisons aside, what exactly is the plan for
(36:30):
these goddamn companies. They don't make enough money to survive
without a continuous slow of venture capital, and they don't
seem to make impressive sums of money even when allowed
to burn as much as they'd like. These companies are
not being forced to live frugally, or at least have
yet to be made to, perhaps because they have all
actively engaged as at spending as much money as possible
and perceived of finding an idea that makes more money
than it loses. This is not a rational nor reasonable
(36:52):
way to proceed. Yes, there are startups that can justify
burning capital. Yes there are companies that have burned hundreds
of millions of dollars to find their business models, or
billions in the case of Uber. But none of these
companies are like those companies in the GENERATIVEAI space. GENERALFAI
businesses don't have the same economics, nor do they have
the same total addressable markets. Now, if you're gonna say
(37:13):
Amazon Web Services, there's a three part episode The Hater's
Guide to the AI Bubble that explains that, in detail,
I do voices, I have sources. You need to go
and listen to that. I'm fucking tired of hearing people
about this one. What about Uber? What about Aws? Yeah?
You got shit? That's all you've got. You certainly don't
have a company to point to. These startups are their
(37:34):
VC firm, subprime mortgages, overstuffed valuations, with no exit route
and no clear example of how to sell them or
who to sell them to. The closest they've got is
using GENERATIVEAI startups as beauty pageants for guys wearing Patagonia,
finding ways to pretend that the guy who runs an
AI startup sorry AI lab, is some sort of mysterious
genius versus just another founder and just another bubble with
(37:55):
just another overstuffed valuation. The literal only liquidity mechanism outside
of cognike that Generative AI has had so far is
selling AI talent to big tech a premium. Nobody has
gone or is going public, and if they're not going public,
the only route for these companies is to either become profitable,
which they haven't, or sell to somebody, which they're not.
But I'd be dancing around the real reason they won't
(38:17):
sell because fundamentally, generative AI does not let companies build
something new. Anyone that builds a generative AI product is
ultimately just prompting the model, albeit increasingly or complex ways,
at the scale of something like claud Code or though
anthropic as the advantage of being one of the main
veins of their infrastructure, or of course cursor. This means
that the generative AI company owns very few unique things
(38:38):
beyond their talent and will forever be at the mercy
of any and all decisions that their model provider makes,
such as increasing prices or creating competing products. I know
it sounds ludicrous, but this is the reality of these companies.
While there are some companies that have some unique training
and models and such. None of them seem to be
building interesting or unique products. Is a result if your
(38:58):
argument is that these things takes time? How long? No? Really,
so many of you have said this is what happens.
They burn a lot of money, they grow, and then
and then what you stop? Sure because the next thing
you say is term profitable by getting enterprise customers. Nobody
can do the first part, and for you can do
the second part in anything approaching a consistent fashion. But really,
how long should we give them? Three years? Perplexity has
(39:21):
had three years and a billion dollars. It doesn't seem
to be close to profitable. How long does Perplexity deserve
exactly four years? Five years an eternity. Every single example
of a company that's burned a lot of money and
then not done so in the end has been a
company with a physical thing or connections to the real world,
with the exception of Facebook, which has never had the
kind of cash burning monstrusity that General fai Is or
(39:42):
Meta has now created for no reason. There has never
been a software company that has just chewed through hundreds
of millions or billions of dollars and then suddenly become
profitable magically, mostly because the magical valuations of software have
been in their ability to transcend infrastructure once unit economics
in the sales of software like my Microsoft Office or
providing access to Instagram do not require the most powerful
(40:03):
graphics processing units run full tilt at all times, and
those are products that people like and want to use
every day, even though both of them seem to be
getting worse every minute. I get people saying that these
companies are in the growth stage, but when all of
them are unprofitable, and even the unprofitable ones outside of
open Ai and Anthropic aren't really making much money. Come on,
(40:24):
this isn't anything like any boom that leads to something
good or you saul or profitable, and it's because the
economics do not make sense. And that's before we get
into open Ai and Anthropic in the next episode. Thank
you for listening to Better Offline.
Speaker 2 (40:45):
The editor and composer of the Better Offline theme song
is Matasowski. You can check out more of his music
and audio projects at Matasowski dot com, m a ttoso
w Ski dot com. You can email me an easy
at better off line dot com or visit better Offline
dot com to find more podcast links, and of course
my newsletter. I also really recommend you go to chat
(41:07):
dot Where's youread dot at to visit the discord, and
go to our slash Better Offline to check out our reddit.
Speaker 1 (41:13):
Thank you so much for listening. Better Offline is a
production of cool Zone Media. For more from cool Zone Media,
visit our website cool Zonemedia dot com, or check us
out on the iHeartRadio app, Apple Podcasts, or wherever you
get your podcasts.
Host
Ed Zitron
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
New Heights with Jason & Travis Kelce
Football’s funniest family duo — Jason Kelce of the Philadelphia Eagles and Travis Kelce of the Kansas City Chiefs — team up to provide next-level access to life in the league as it unfolds. The two brothers and Super Bowl champions drop weekly insights about the weekly slate of games and share their INSIDE perspectives on trending NFL news and sports headlines. They also endlessly rag on each other as brothers do, chat the latest in pop culture and welcome some very popular and well-known friends to chat with them. Check out new episodes every Wednesday. Follow New Heights on the Wondery App, YouTube or wherever you get your podcasts. You can listen to new episodes early and ad-free, and get exclusive content on Wondery+. Join Wondery+ in the Wondery App, Apple Podcasts or Spotify. And join our new membership for a unique fan experience by going to the New Heights YouTube channel now!