tokens are getting more expensive - by Ethan Ding
note: i’m kinda tired of the “levered beta” metaphor, i have one more topic i want to cover on this topic related to cognition, and then i’ll go back to my normal writing
imagine you start a company knowing that consumers won't pay more than $20/month. fine, you think, classic vc playbook - charge at cost, sacrifice margins for growth. you've done the math on cac, ltv, all that. but here's where it gets interesting: you've seen the a16z chart showing llm costs dropping 10x every year.
so you think: i'll break even today at $20/month, and when models get 10x cheaper next year, boom - 90% margins. the losses are temporary. the profits are inevitable.
it’s an understandable strategy: "the cost of LLM inference has dropped by a factor of 3 every 6 months, we’ll be fine”
but after 18 months, margins are about as negative as they’ve ever been… windsurf’s been sold for parts, and claude code has had to roll back their original unlimited $200/mo tier this week.
