Latent Space: The AI Engineer Podcast
00:23:06 · Jamin Ball, Shawn Wang
[00:23:06] S0: But if you factor Not at IPO. Never. Not at IPO. [00:23:09] S1: Never at IPO. [00:23:10] S0: But but even today, the mature ones, even if you factor in stock based comp, most of them are free cash flow neutral or negative if you treat stock based comp as a cash expense. [00:23:19] S1: So all those companies are dying and everyone's just buying Anthropic, right, as the company? [00:23:23] S0: I think there's a... Well, you're not quite that, but certainly [00:23:27] S1: Why would you? Like, anything else.
00:23:27 · Shawn Wang, Jamin Ball
[00:23:27] S1: Why would you? Like, anything else. [00:23:28] S0: Yeah. I mean, look, here's a crazy stat. In the s one, it's like a breadth versus depth one. They called out 50% of the Fortune five hundred is using Anthropic. Yep. However, if you look at what that cohort, the Fortune five hundred, is spending on Anthropic as a percent of their expenses, it's point 1%. And so you ask yourself, where's that headed? I think John Collison on... He had Sam Altman on his podcast the other day. I think he mentioned 1% of Stripe's expenses are on tokens today, but he expects that to go to 15 to 20% Jesus. Over the next few years. Jesus. And so, obviously, Stripe is a very forward leaning tech company. Your average business in the Fortune 500 isn't gonna show that level, but it could show a same order of... Or a same magnitude of growth. So if Stripe is saying we're going to 15 to 20 x the spend on tokens relative to other expenses in the org, maybe you see something similar in the Fortune one five hundred go from point 1% to 1%. But I do think it's, you know, ultimately, where do you think that settles out? How deep can they penetrate their TAM? It's kind of like an important question that, you know, folks should think about. But to me at least, what it demonstrates is they really haven't... Despite... I mean, despite the insane ramp in revenue, you know, growing over a thousand percent year over year in the q two quarter, there's probably still a lot of room left for them to kinda continue to penetrate their TAM.
00:24:57 · Shawn Wang, Jamin Ball
[00:24:57] S1: Yeah. And, you know, I think the the word is virtual collaborators. Yeah. You know, I I say agents, but Right. You you make it a friendly term for people. And, you know, I really start to tell people, you should just start thinking about it in terms of, like, what your employee spend versus your workers spend is. [00:25:12] S0: Mhmm. [00:25:12] S1: Mhmm. And most people are at, let's call it, 0.1 or Yeah. Zero point... Or, like, one to 5%. Yep. The median AI company is at 50%. Mhmm. And the top AI companies... You know, let's say ninetieth percent of telanthropic person is, 10 x token Yeah. Tokens of salaries. Yep. And so that is probably the right comp of, like, well, what are you spending on humans? Yeah. Right. And like, probably 30%. Right? Yeah. Like Yeah. And well... Okay. [00:25:38] S0: So Could be more even. I mean, yeah, humans could be like four... You know, total headcount could even [00:25:42] S1: be like 40% the day. Right? Yeah. Exactly. And so, like, if you're a physical business, fine. That's like, until we have good robots, then that's not that's not getting happening. But what are you spending on knowledge worker humans? What is... And and knowledge worker humans that includes coders, but also just admin and ops and what have you and and and legal and whatever you want Yeah. And all of that. And some part... Like, that percentage... The the ratio of tokens spend to human spend was zero to whatever Yep. And now it's gonna rise. Yeah. And how far can it go?
00:25:42 · Shawn Wang, Jamin Ball
[00:25:42] S1: be like 40% the day. Right? Yeah. Exactly. And so, like, if you're a physical business, fine. That's like, until we have good robots, then that's not that's not getting happening. But what are you spending on knowledge worker humans? What is... And and knowledge worker humans that includes coders, but also just admin and ops and what have you and and and legal and whatever you want Yeah. And all of that. And some part... Like, that percentage... The the ratio of tokens spend to human spend was zero to whatever Yep. And now it's gonna rise. Yeah. And how far can it go? [00:26:10] S0: Yeah. Totally. Totally. It can go a lot. I mean, look. I I think there's there's a lot of, like, hyperbolic statements being made both positive and negative about OpenAI, Anthropic, the big labs. I think it really boils down to three main questions. Can Anthropic stay on the frontier? Is there a business and a durable business to be built at the frontier? And if so, how much is it gonna cost? And and and and then in reality, two and three kind of, like, relate to each other. Can it make enough money to cover all the costs to be at the frontier? And that's that's the one where... I think I actually have a couple. I think I [00:26:48] S1: have one chart on this.
00:26:49 · Jamin Ball
[00:26:49] S0: Let me let me see which one. What did I want to bring up? This one... Yeah. Let me pull up... No. Let me pull up this one. This is a good one. So this is kind of the second question. Like, how much will it cost to be at the frontier? Or or or even maybe let's go to, like, what what can you build a business at the frontier? The other interesting stat that Anthropic had in their s one was for the three months ending September, 80% of their revenue was driven by models that were six months old or younger. And so what does that tell you? The vast majority of their revenue is coming from their most recent, most powerful models. And that's something that I kind of expect to continue. I think, you know, when it comes to frontier tokens down to open weight tokens, I think there'll be a massive market for both. I think the trend will continue to be on a... As a percent of tokens, open weight can... Continues to eat share. But as a percent of wallet share in dollars, Frontier continues to take the lion's share. So I expect Frontier tokens to be the most economically valuable to capture the most market share. I expect open weight and cheap tokens to capture the most market share in terms of total tokens. And I think kind of this stat on 80%, which is much bigger than I would have expected just in models six month old or less, kind of demonstrates the value of being on the frontier. Okay. So then let's go... Next, go to the second question, which is, well, what is it gonna... Or the third... Like, is it gonna And here's a chart, I think... And there... There's... I'll I'll have to caveat this chart. But a lot of people look at the Anthropic S1 and say, oh my gosh. There's $856,000,000,000 of Off the books. Of, like, not even off, but, like, committed deals that they've signed. Yes. How are they gonna pay for it? You know, they're at whatever whatever their ARR is, something in, like, I don't know, 70, 75, 80, you know, whatever. I think the last number was 65. The q three number was 16 0.8, but whatever. 70 plus or minus. How are you gonna pay for 855,000,000,000?
00:28:55 · Shawn Wang, Jamin Ball
[00:28:55] S1: You know, like, have you read the rest of the s one nine? Well, what I [00:28:57] S0: what I... So what I tried to do what I tried to do in this chart is I broke down the the... Because they they broke down their commitments. They didn't do it by year, but Is [00:29:07] S1: this normal, by the way, that you would have year by year? [00:29:09] S0: No. Feel like this is unnecessary. Year year by year, this is a little bit of the Jamin best interpretation. They'll give a dollar. I've seen variations of [00:29:18] S1: this. Yeah. Yeah. Yeah. [00:29:19] S0: It's... And so I think what you have to ask yourself is in the commitments that they've made, and I've tried to annualize the commitments. If they said this is a five year deal, I've just made it, This is a five [00:29:28] S1: year deal. By the way, every banker in the world has done this already. Yeah. Like, they did this on the night of the S1. Right? [00:29:34] S0: So you have to ask yourselves, can you pay for it? Okay. Well, at a fixed basis, and then the gray bars is maybe like less hard commits, but commits they wanna make. There's just [00:29:45] S1: the x a... SpaceX one is in there. Right? Yeah. Exactly. They can walk away from nineteen