Why Building LLMs is probably not going to be a brilliant business
The world of large language models (LLMs) is currently filled with excitement and innovation, with models like Chat-GPT and Claude.ai captivating the attention of many. Many believe that these LLMs are the future of technology, but the truth is that building them may not result in a profitable business venture.
The Airlines Industry Dilemma
Comparing the potential fate of LLM makers to that of the airlines industry sheds light on the challenges that lie ahead. Back in the 1960s, airlines were seen as the future, much like how LLMs are viewed today. However, the reality is that the airline industry has proven to be a notoriously difficult and unprofitable business. Airlines come and go, with many well-known companies like Monarch, WOW Air, Thomas Cook, Flybmi, and Zoom succumbing to financial difficulties even before the COVID-19 pandemic.
On the other hand, industries that may seem simple, like the fizzy drinks market, can be incredibly lucrative. Companies like Coca-Cola consistently achieve high returns on equity, demonstrating that profitability often lies in unexpected places.
The Impact of Industry Structure
One key factor that determines the success of a business is its industry structure. The airline industry, for example, faces challenges such as limited aircraft manufacturers, fierce competition, and the ease of entry for new players, making it a tough market to thrive in. In contrast, industries like beverage manufacturing have more favorable structures that allow for sustained profitability.
Challenges Faced by LLM Makers
LLM makers face their own set of challenges that could hinder their long-term viability as successful businesses. Unlike popular belief, their suppliers are not as diverse as one might think. NVIDIA, the manufacturer of chips used in LLM training, holds significant pricing power over all LLM models, regardless of the cloud service provider.
Additionally, the LLM market is flooded with competitors, leading to competitive pricing and the ease of developing new models. Companies like Facebook even offer LLM models for free, reminiscent of past industry battles like the First Browser War.
The Uncertain Future of LLM Makers
Despite the significant investments and valuations in the LLM industry, questions remain about the long-term sustainability of LLM makers as profitable businesses. While companies like OpenAI may have ambitious plans to develop proprietary chips or build strong brands, the competitive landscape and market dynamics suggest a challenging road ahead.
Ultimately, the success of LLM makers hinges on their ability to navigate industry challenges, differentiate themselves from competitors, and adapt to evolving market trends. Only time will tell if building LLMs will indeed lead to a brilliant business venture.
