They are raking in 10's of billions, growing revenues astronomically as we speak.

That's not sign of commodity actor, just the opposite.

But, that's not what you said they'd do. I can switch to a different model with almost zero cost. That's the definition of a commodity.

No, you switched to another SOTA model.

You didn't switch to 'Random Corner Store Token Seller' down the street, did you?

There 2-3 top players, that is not commodity.

Commodity is when there are enough that none of them have market power or can set prices.

'Commodity' means you buy your tokens from the Grocery Store on their loan plan. Like consumer credit is a commodity.

FYI predict this is roughly the way it will stay.

We will develop a lot of use for Chinese Open-ish models etc. but the SOTA's will maintain their place for a lot of things.

Commoditizarion is a process, not a binary state.

If I run an oil refinery, my fractional distillation system needs to be reworked depending on the exact mixture of crude I'm taking as input. So there are still switching costs even in the textbook example of a commodity.

Crucially though the exact upstream I use has minimal impact on the downstream. Closer equivalents, say, another barrel of WTI grade crude from a nearby regional supplier, require extremely minimal reworking. Oil from a different region, that might require more retooling, so I might be willing to sustain a longer shock in market conditions before making that switch. The important thing is the output broadly remains the same, but even this is broad, e.g. a different mix of inputs yields different ratios of output.

LLMs are quite similar no? Maybe switching to another SOTA model has minimal reworking, as you can delegate at the same level of abstraction to the model, whereas switching to a slightly-behind-frontier model you need to do more hand holding. Switching costs being nonzero does not preclude them from being broadly an interchangeable input in the production process. Any non-frontier use (99% of SWE) will be delivered on pretty much the exact same timeline irrespective of which model was used, so my requisition process looks more like buying barrels of oil than e.g. shopping for a new phone.

Oil varies a bit but it's a commodity.

There are 3 SOTA model makers, and they have pricing power.

The 'switching costs' is not the issue so much as the inherent control over the commodity.

Think OPEC - when they acted as a cohort - they raised prices dramatically by having enough control to 'set prices'.

When OPEC lost it's pricing power ... nobody could set prices.

Fable is considerably better than GLM5 and it will have a strategic input - there is just hardly any substitute for it.

If these were cars - we'd just use whatever fuel.

But these are 'F1 races' - if you have some low grade 'dirty fuel' you will lose the race. You must have the 'top fuel'. There are 3 provides who implicitly collude and set prices.

> No, you switched to another SOTA model. You didn't switch to 'Random Corner Store Token Seller' down the street, did you?

You're assuming that SOTA never hits a hard ceiling, letting local models catch up and achieve parity

It seems unlike that the frontier labs are going to be keeping ahead forever, they'll hit some kind of ceiling eventually

It's a fair point about the 'ceilings' but I'm not quite making that assumption.

I think a few things are going to happen:

1) The Open Weights never really fully catch up, because there's too much Engineering and integration going now. It's way more than 'weights'

2) The Commodity Chinese models never quite catch up for the same reason every other product they make does not catch up - while they will shine in some areas, it won't land fully.

3) Horizontal integration, supply chains, availability, SLA, security, branding, regulatory requirements - all of this will add up to something competitively maintainable.

Can you name a product category that has truly hit a ceiling? Cars, computers, phones, airplanes ... always seems to be a way to nudge forward.

Good point though.

I think it's not really much of "hitting a ceiling", but more like plateauing, with growth and improvement slowed down so much that it seems to stagnate.

It's all relative. In computing we're used to Moore's law driving most of the innovation (including this AI boom, which was at least partially due to availability of high powered GPUs), if improvements become less "exponential" and more "linear" it would feel like stagnation.

Right now in AI, we're talking about leaps of capabilities in months. When improvements come along every other decade, it's not "hitting a ceiling" but effectively it's plateauing and stagnating compared to this period of high growth.

For example, Chinese models are said to be roughly 6 months behind. If this remains constant and frontier AI models gets a break through every couple years, this isn't "hitting a ceiling" but it would erode away the competitive edge they have over the Chinese models.

> Can you name a product category that has truly hit a ceiling

I think basically every product category has hit ceilings by now, honestly. Do you think vacuum cleaners are significantly better at vacuuming than 10 years ago?

Not really. But they pivoted to doing autonomous vacuums instead. The actual vacuum tech doesn't seem like it's getting much better though?

Same with a lot of appliances. Fridges aren't really better at keeping food cold than they were 30 years ago, are they? They just have "smart home" stuff now, and they are probably much more energy efficient

I guess you can look at that as "not reaching a ceiling" as an overall appliance but the actual discrete technology is not changing or improving much imo

Vacuums are nothing like what they were in the decades past - Dyson has transformed them entirely - maybe not 'every decade' but they are evolving.

Go and use a fridge from 40 years ago and compare to a modern one - granted, their essential function has not really improved that much. They were much more durable before, but rudimentary.

Most product categories in tech have evolved, and it's why there are leaders in most categories.

> Fridges aren't really better at keeping food cold than they were 30 years ago, are they?

Fridges have made huge leaps in energy efficiency, they’re easily 3-4 times better at cooling your food.

That's what I'm saying though.

Energy efficiency is nice, it's a good improvement, but from an end user perspective the 30 year old fridge still keeps your food just as cold.

If you were from 2025 and got trapped in the 1970s and needed to keep some milk from going sour for a day, you wouldn't be thinking "damn if only these old 1970s fridges worked more efficiently. I could easily accomplish this goal with a modern fridge!"

The 1970s fridge would do just fine

You think that a fridge is about 'keeping food cold'?

It's about ease of access, price, noise, convenience, durability, features.

My folks have this fancy 2 door thing, perfectly quiet, makes the best ice you can imagine, it's hidden into the cuppboards, it's energy efficient, has these crisper things, you can see in and reach around easy, lots of space. It's a better product.

There were two or three top players. As of this week there are at least five. xAI is apparently in the game with a new Mecha Hitler release, Meta seems to be back in the game, z.ai is biting the ankles of the big dogs...not hurting them, yet, but they aren't going to get any less capable. Google got caught flatfooted as they maybe didn't notice where the money is in LLMs, but they still have the inventors of the technology on payroll and they have a money faucet that doesn't rely on people paying for the product directly.

"Commodity" doesn't mean there are no luxury goods in the space, it just means there are many options that will work for most people. I'll pay more for the best model, right up until the best model stops being a good deal. But, switching won't be all that painful. Even last week before Meta and xAI released competitive models, I was already using DeepSeek for tasks best served by an API and where the smartest model isn't critical. It's just so cheap, I can send it 10x more tasks for the same money. I haven't even mentioned several others that aren't competitive today, but likely will be.

I think predicting this market will stay like it is, with clear dominance by Anthropic and OpenAI seems like it requires ignoring a lot of countering evidence.

Those are announcements, not released integrated models.

There are two Tier 1 platforms today.

Meta, Google and XAi are formidable Tier 1.5 place, any one of which could rise to the fore.

My belief is that it will be Google and that probably only one of them will keep up in the long run.

There is a 'breaking point' when you start to get past 4-ish players - it really does start to introduce competitive pressures.

Your second point about Tier 2 substitution is valid, but a few things:

1) Tier 1 models are not a 'luxury good' - that has a different economic definition. They are for most applications today actually just the quality, rational choice.

2) Substitution will have different effects for different people, and you're right that AI for many tasks will be commiditized.

All of the profits in Mobile Phones go to Apple even though they are not the biggest player.

Almost all of the profits in Silicon go to the leading edge chips - even though there are a zillion fabs that make legacy chips.

Absolutely and complete false use of commodity.

Has nothing to do with market power. Market power can persist irrespective of the existence of a commodity. Market power only goes away in a perfectly competitive market.

Does such a thing exist? Hahaha. No

This assumes the best models continue to be publicly available. There's some level of capability where it makes more sense to go in business for yourself.

They can do both things at once (and appear to be doing so).

They already are. Non-model features are popping up quickly, most of which are vendor lock-in mechanisms.