A lot of the AI industry is powered by VC money at the moment. Which means a lot of the services offered are using very low fixed billing. This loses a ton of money, but is seen as an investment. The idea is to get a lot of customers and lock them into the service. Then slowly raise prices, enshittify the service and thus gain back the money lost in the beginning.

However what we’ve seen in this AI bubble is everything is moving too fast for that to be a good option. VC money is running out fast and the price of AI from the large providers is getting higher by the day. This means a lot of those AI startups that were trying to get customers are losing money much faster than expected and either have to raise prices or shutdown.

Especially in sectors where there isn’t a lot of money to be made. Customer support for example is one of those areas that costs money and doesn’t make money normally. So corners get cut, people don’t get paid much and stuff is outsourced to India for example. When the AI solutions are offered at the low fixed price, it’s a good idea for companies to use it. But when the price goes up and pricing becomes unpredictable if token based billing is involved, suddenly it isn’t as good an alternative as the older solutions were.

This is a large part of the AI bubble when people talk about that. It isn’t just the circular investments, way too high spending commitments and overpromising of the tech. It’s also the huge amount of VC based startups and investment programs that can’t economically exist without that continuous injection of funds. Now that the real price of AI is showing up, it looks like al lot of those startups will go bankrupt and large projects funded by investment will stop. With a lot of the market price of the larger tech companies being based on this huge demand that might evaporate in short order, the fear is a lot of them are way overvalued. When the market corrects for this, the impact will be pretty big and the fallout felt by everyone.