Instead of creating models that are quick, cheap, and good, the largest AI laboratories in the United States have been competing for the past two years to make ever-smaller increases to the quality of their models. There is a better approach, as demonstrated by DeepSeek.
The head of OpenAI, Sam Altman, has spent years informing investors and the country’s new president that in order to remain at the vanguard of artificial intelligence, enormous amounts of funding and processing capacity are required. As a result, investors have wagered that a small number of companies would be able to collect enormous monopoly-like rents.
Nvidia became the world’s most valuable listed business because of a popular conviction that producing the finest AI meant paying through the nose for its top processors (on which its profit margins are said to surpass 90%).
But the DeepSeek release shows that AI can be more affordable than those tech giants claim. Its cost of tuning is a fraction of Open AI. Cheaper AI can have vast applications compared to more expensive ones. In fact cheaper AI means the productivity gain of AI models would not be handed out to AI chip makers like Nvidia nor to AI model makers like Open AI, but to the end users. Tech companies in general would definitely benefit from more affordable AI solutions. Apple will be pleased that its decision not to invest billions in developing AI capabilities has paid off. It may sit back and choose the finest models from a freshly commoditized pool. In the longer run companies like Open AI and even Nvidia might profit from selling more products in the years to come.
However, the true winners will be the customers. To alter society, AI must be inexpensive, omnipresent, and beyond the control of any single government or organization. DeepSeek’s success implies that such a world is plausible. Take Britain, where Prime Minister Sir Keir Starmer has announced a strategy to harness AI to enhance productivity. If he does not have to pay Microsoft use fees for the majority of the efficiency benefits, his idea stands a stronger chance of success. When producers’ rents disappear, they remain in the pockets of consumers.
Source: Economist
