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Techcrunch reports that AI coding tools have "very negative" gross margins. They're losing money on every user.
Submitted 8 months ago by Davriellelouna@lemmy.world to technology@lemmy.world
https://techcrunch.com/2025/08/07/the-high-costs-and-thin-margins-threatening-ai-coding-startups/
Comments
jlow@discuss.tchncs.de 8 months ago
balder1991@lemmy.world 8 months ago
Yeah, this has been reported on multiple analysis over time. Until something in the hardware space changes, it’s gonna be an unprofitable business.
WanderingThoughts@europe.pub 8 months ago
It’s been the same way with every AI tech at far. They run down the hype cycle and you get the classic AI winter while academics tinker until they find the next upgrade. Just now they’re plowing billions into this because “this time it’s different”. Or they just needed something to keep the tech bubble gravy train rolling.
jlow@discuss.tchncs.de 8 months ago
Well, just keep pumping in the billions until the bubble bursts and we can look for the next fad, to do it all over again, right?
Prox@lemmy.world 8 months ago
Isn’t this true of like everything AI right now?
We’re in the “grow a locked-in user base” part of their rollout. We’ll hit the “make money” part in a year or two, and then the enshittification machine will kick into high gear.
jaykrown@lemmy.world 8 months ago
I doubt it, LLMs have already become significantly more efficient and powerful in just the last couple months.
In a year or two we will be able to run something like Gemini 2.5 Pro on a gaming PC which right now requires a server farm.
AmbiguousProps@lemmy.today 8 months ago
Current gen models got less accurate and hallucinated at a higher rate compared to the last ones, from experience and from openai. I think it’s either because they’re trying to see how far they can squeeze the models, or because it’s starting to eat its own slop found while crawling.
cdn.openai.com/…/o3-and-o4-mini-system-card.pdf
Ghostalmedia@lemmy.world 8 months ago
Yeah, it’s basically like early days of cable, Uber, Instacart, streaming, etc. They have a lot of capital and are running at a loss to capture the market. Once companies have secured a customer base, they start jacking up the prices.
Tollana1234567@lemmy.today 8 months ago
in this case there isnt customer base for AI, only ceo and c-suites are.
woelkchen@lemmy.world 8 months ago
An attempt at that. It will be partially successful but with AI accelerators coming to more and more consumer hardware, the hurdles of self-hosting get lower and lower.
I have no clue how to set up an LLM server but installing github.com/Acly/krita-ai-tools is easily done with a few mouse clicks. The Krita plugin handles all the background tasks.
hitmyspot@aussie.zone 8 months ago
That’s the usual business plan. However, people don’t really like ai. The results aren’t great, so, if they jack up the price, people will likely cancel. The lock in is poor as the product and convenience is poor. It doesn’t really save money as promised.
Velypso@sh.itjust.works 8 months ago
If people dont like ai, why do all of my coworkers and family members constantly reference ai?
Seriously, yall mfs here on lemmy have the strangest social media bubbles.
Ghostalmedia@lemmy.world 8 months ago
Once you start asking about AI in regard to specific use cases, I think you’ll find that quickly changes.
My company and I have been running a lot of studies around how and where people find value in these tools, and a LOT of people find LLMs useful for copy writing, doing quick research, data visualization, synthesis, fast prototyping, etc.
There’s a lot of crap that AI is bad at in 2025. Especially the poor in-app integrations that everyone is trying to standup. But there are a lot of use cases where it does provide a lot of value for people.
woelkchen@lemmy.world 8 months ago
Whether they like it or not, doesn’t really matter. It’s being used everywhere.
Depends. To get information: No. To write big software: No. To write an Excel macro or a browser bookmarklet: Yes.
ch00f@lemmy.world 8 months ago
The usual business plan is to reinvest all earnings into growth. So you’re losing money, but gaining market share. Tesla, Amazon, etc all did this. They could stop at any point and turn a profit, but they chose to pursue a growth instead.
AI companies are currently not making enough revenue to even cover their operating costs. Even so, they are pouring all of their money into more video cards that, once installed and configured, immediately start losing money.
Kyrgizion@lemmy.world 8 months ago
Original predictions had AI taking over 50% of jobs by mid decade. We’re here, and it obviously hasn’t happened. Now, it WILL happen but not on the scale initially imagined, and probably in a much more insidious, gradual way.