You don't buy a model. You rent it. You pay per token. You pay per image. You pay per second of audio. The model sits on a server. You access it through an API. You are not buying software. You are buying access. This is the API economy. OpenAI, Anthropic, and Google are not selling models. They are selling access to models. They are becoming the new AWS.
This is a fundamental shift. The model is no longer the product. The API is the product. And the API provider has all the power.
The Shift: From Software to Service
The software industry is shifting from ownership to access.
The Old Model:
You buy software.
You install it on your hardware.
You own it.
The New Model:
You rent software.
You access it through the cloud.
You don't own it.
A Contrarian Take: The Shift Is Not New. It Is a Return.
We call it "new." But it is a return to the old model. In the 1960s, we rented time on mainframes.
The cloud is just a mainframe. The API is just a terminal.
The Players
OpenAI, Anthropic, and Google are the dominant players.
OpenAI:
GPT-4, GPT-4o, and o1.
The most popular API.
The most expensive API.
Anthropic:
Claude 3.5 Sonnet and Claude 3.5 Opus.
Focus on safety and alignment.
Competitive pricing.
Google:
Gemini 1.5 Pro and Gemini 1.5 Flash.
Deep integration with Google Cloud.
Aggressive pricing.
A Contrarian Take: The Players Are Not Competing. They Are Colluding.
We call it "competition." But the prices are converging. The features are converging.
The players are not competing. They are colluding. They are dividing the market.
The Economics of the API
The API economy is a lucrative business.
The Cost:
Training a model costs millions.
Inference costs cents per query.
The Revenue:
The API provider charges per token.
The margin is high.
The profit is enormous.
A Contrarian Take: The Economics Are Not Sustainable.
The economics are not sustainable. The cost of inference is falling. The price of APIs is falling.
The API providers are in a race to the bottom.
The Lock-In Effect
The API economy creates lock-in.
The Problem:
You build your product on an API.
You become dependent on the API provider.
You cannot easily switch.
The Consequence:
The API provider has pricing power.
The API provider can raise prices.
You cannot leave.
A Contrarian Take: The Lock-In Is Not a Bug. It Is a Feature.
The lock-in is not a bug. It is a feature. The API provider wants you to be locked in.
The lock-in is the business model.
The Innovation Impact
The API economy impacts innovation.
The Positive:
The API makes AI accessible.
It lowers the barrier to entry.
It enables innovation.
The Negative:
The API creates dependency.
It centralizes power.
It stifles competition.
A Contrarian Take: The API Is Not Stifling Innovation. It Is Enabling It.
The API is not stifling innovation. It is enabling it. The API makes AI accessible to everyone.
The API is a platform. Platforms enable innovation.
What This Means for You
You are not a corporation. But you are part of the API economy.
- Choose Your API Carefully:
Consider the pricing.
Consider the lock-in.
Consider the alternatives.
- Build for Portability:
Use abstraction layers.
Make it easy to switch.
Don't get locked in.
- Be Aware of the Costs:
The API costs money.
Monitor your usage.
Optimize your prompts.
The Last API
The last API is not a product. It is a relationship.
You ask: "Which API should I use?"
The AI says: "It depends."
You realize: The choice is not about the API. It is about the relationship.
If you could choose between a cheap API with poor support and an expensive API with great support, which would you choose? And why?
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