On Commoditization, Pricing, and Assets | Evan Conrad

I’m one of the founders of San Francisco Compute. We sell GPUs. I’ve been thinking about commodities a lot, since they pop up in AI a lot. AI is unique: it’s software with expenses. Most software people aren’t used to dealing with significant capex, COGS, supply, depreciation, inventory risk, commoditization, and so on. Folks come into the game with decades of advice on how to make high-margin, highly differentiated, product focused software companies, but little information on how to win in games with normal business. The following piece argues that there’s an objectively correct move to be made at every step, and lays out how to make them. By default, commoditization king-makes the player with the cheapest cost of capital. Eventually, all the competitors in the market conform to the cheapest strategy to create widgets and buy from the cheapest vendors. At that point, the only way to drive prices down further is to compete to get a cheaper loan than the next guy. And the folks that ge

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