Have to enter an email address to the read the full story?
In any case: author does not factor in Anthropic's potential gross margins on the tokens via the API. He assumes if $10,000 is consumed via the Claude Code API tokens, then Anthropic must be losing $10,000.
You don't have to enter an email address! There is a close button very conveniently placed. I will leave the rest as an exercise for the reader.
Ed acknowledges that we don't know their inference costs in the article. But unless they made a Deepseek level of breakthrough in serving through API, they are either breaking even or losing money at each call.
There is a race to the bottom and survival of the deepest pockets right now in the field. And this "subsidy" funded by investors will not last.
I should clarify that I don't think Anthropic will go out of business. Similar to Ed, I am purely looking at this as business analysis and their actions indicate that they are starting to change parameters of their business model.
Comparing Uber to Anthropic is not correct, because their cost models are not the same. Uber has mainly labor cost which is low-skill and high-volume, followed by service costs which are high-skill but low-volume. Which leaves a lot of room for optimization.
Anthropic has very big bills to pay, and those bills will only go up as they scale. In depth analysis of frontier model companies is difficult, since they are private and secretive.
If they remain as ambitious as they are/were in interviews, they are going to build larger multi-modal models. If they are loyal to their initial philosophy "Achieve safe AGI by using lead time" then they will try to outspend everybody else. Content of their spending cannot be known without insider information (which I don't have), but this business model is ripe for inefficiency for the sake of obtaining first mover's advantage.
It is "unpopular" to say this, especially this bluntly, but low-skill labor can be made as cheap as you want it to be. If my numbers aren't wrong, average Uber/Lyft worker works for less than hourly local minimum wage (don't say tips, ~80% of Uber customers don't tip). But they accept it because of lack of opportunity, flexibility of gig jobs, and potential for working many jobs.
This is going to be anectodal. In my experience, they mostly don't know. Also, I have been to countries where Uber would charge you 4-5x of what they pay to drivers. In those countries, taking a cab would be half the cost of Uber albeit at a "perceived" risk to your well-being. Uber knows how to monetize convenience and risk-aversity.
There is also a fundamental floor how cheap compute can be: infrastructure costs, hardware depreciation, maintenance. Realistically, in next 5 years, we will not reach negligible compute costs. You can ask crypto-currency community about the limits of compute costs.
I see, you mean the paywall part not the "Subscribe to the Newsletter" message. I misunderstood and I apologize. While rest of the article is worth reading, the main message is already in the free part: "Anthropic is changing their pricing, and it is probably because they are losing money much faster than they intended to" (e.g. bleeding out)
In any case: author does not factor in Anthropic's potential gross margins on the tokens via the API. He assumes if $10,000 is consumed via the Claude Code API tokens, then Anthropic must be losing $10,000.
We don't know. What's their cost of inference?