Price Butcher

Good Morning, AI Enthusiasts!

As AI continues to evolve, companies must navigate the delicate balance between innovation, cost management, and market demand. Those that succeed will not only shape the future of AI but also redefine the industries they serve.

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Deepseek Shows How to Sell “Diamonds” at a 97% Discount and Make Profit

In May 2024, the Chinese AI startup DeepSeek released DeepSeekV2, a model that has since earned the moniker of "price butcher" in the AI industry. DeepSeek's pricing strategy—offering services at approximately 1/10th the cost of competitors—has disrupted the market, challenging established players like OpenAI, Google, and Microsoft. This bold move has sparked debates about the sustainability of such low prices and whether DeepSeek is engaging in a loss-leading price war.

Are We Being “Robbed” by OpenAI?

However, skepticism about DeepSeek's profitability was dispelled during a week open-source code release and an overview of its inference system. DeepSeek shows how to generate $200 million a year with a profit margin over 500%. They achieve this while charging $2.19 per million tokens on R1, which is about 25 times cheaper than OpenAI's o1.

It seems that the rules of the game have shifted. This change is largely due to this Chinese company that showed how US technology restrictions can lead to unexpected consequences. These restrictions pushed them to create more efficient solutions, which they are now offering to the world for just 3% of OpenAI’s price. Additionally, OpenAI anticipates losing $14 billion by 2026, unprofitable until 2029!!!

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BUSINESS

Microsoft and Google: Struggling to Balance AI Costs and Revenue

While DeepSeek thrives on affordability, tech giants Microsoft and Google are grappling with the financial challenges of integrating AI into their flagship products. After a year of embedding generative AI into its services, Microsoft has adopted a controversial strategy to recoup costs. The company has increased subscription prices for its Microsoft 365 suite by up to 45%, introduced ad-supported versions of its products, and canceled planned data center leases. Similarly, Google has raised prices for its Workspace plans while integrating AI features like Gemini directly into its core offerings.

Difficult To Balance Price and Cost

These moves reflect the high costs associated with AI development and deployment. Despite the hype surrounding generative AI, Microsoft's CEO, Satya Nadella, recently admitted that AI has yet to generate substantial value for the company. Google's approach, while similar, focuses on consolidating AI capabilities into its Workspace plans. Starting in March 2025, the company eliminated the standalone Gemini SKU, integrating features like "Help Me Write" and AI-generated meeting notes into its Business and Enterprise plans. This sentiment underscores the difficulty of monetizing AI technologies in a way that balances innovation with profitability.

Looking Forward

The contrasting strategies of DeepSeek and these tech giants highlight a fundamental tension in the AI market: affordability versus profitability. While DeepSeek demonstrates that low-cost models can be profitable, Microsoft and Google's struggles suggest that established players face unique challenges in adapting to the evolving market dynamics.

BUSINESS

SoftBank: Borrowing Big to Fund AI

SoftBank, known for its ambitious investments in technology, is doubling down on AI. The company is reportedly considering borrowing $16 billion to fund its AI initiatives, on top of the $15 billion it has already committed to Stargate, a joint venture with OpenAI and Oracle.

SoftBank's AI Vision

During its Q3 FY2024 earnings briefing, SoftBank's President & CEO Junichi Miyakawa outlined the company's AI vision: "Our aim is to be the best at utilizing AI and become a provider of next-generation social infrastructure." Key initiatives include:

• Deploying "Cristal intelligence," an advanced Enterprise AI, through a joint venture with OpenAI.
• Developing homegrown Large Language Models (LLMs) specialized for the Japanese language.
• Collaborating with Microsoft Japan on generative AI.

The Financial Gamble

SoftBank's aggressive investment strategy reflects its belief in AI's transformative potential. However, the decision to borrow $16 billion raises questions about the sustainability of such large-scale funding. Critics argue that SoftBank's reliance on debt could expose the company to significant financial risks, particularly if its AI ventures fail to deliver the expected returns.

QUICK HITS

• UK unions urge government action to protect creative workers from exploitation as AI technology advances.
• Japan introduces AI robot AIREC to tackle caregiver shortages in elderly care.
• Lenovo announces new AI-powered laptops, including the Yoga Pro 9i and ThinkPad 14s 2-in-1, set to debut at MWC.
• Apple's LLM Siri may not arrive until 2027, with a new version launching in May.
• Chinese smartphone giant Honor announces $10 billion investment plan to enter AI sector

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