AI's Costly Buildup Could Make Early Products a Hard Sell

Microsoft, Google and others experiment with how to produce, market and charge for new tools. From a report: Microsoft has lost money on one of its first generative AI products, said a person with knowledge of the figures. It and Google are now launching AI-backed upgrades to their software with higher price tags. Zoom has tried to mitigate costs by sometimes using a simpler AI it developed in-house. Adobe and others are putting caps on monthly usage and charging based on consumption. "A lot of the customers I've talked to are unhappy about the cost that they are seeing for running some of these models," said Adam Selipsky, the chief executive of Amazon.com's cloud division, Amazon Web Services, speaking of the industry broadly. It will take time for companies and consumers to understand how they want to use AI and what they are willing to pay for it, said Chris Young, Microsoft's head of corporate strategy. "We're clearly at a place where now we've got to translate the excitement and the interest level into true adoption," he said. Building and training AI products can take years and hundreds of millions of dollars, more than with other types of software. AI often doesn't have the economies of scale of standard software because it can require intense new calculations for each query. The more customers use the products, the more expensive it is to cover the infrastructure bills. These running costs expose companies charging flat fees for AI to potential losses. Microsoft used AI from its partner OpenAI to launch GitHub Copilot, a service that helps programmers create, fix and translate code. It has been popular with coders -- more than 1.5 million people have used it and it is helping build nearly half of Copilot users' code -- because it slashes the time and effort needed to program. It has also been a money loser because it is so expensive to run. Individuals pay $10 a month for the AI assistant. In the first few months of this year, the company was losing on average more than $20 a month per user, according to a person familiar with the figures, who said some users were costing the company as much as $80 a month.

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