Oct 31, 2023 - Technology

Cloud costs make it tough to price AI magic

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Illustration of clouds shaped like dollar bill signs

Illustration: Annelise Capossela/Axios

Even as they rush to capitalize on the generative AI boom, software makers struggle to put a price tag on AI services that cost money each time users submit a prompt.

The big picture: Most software-as-a-service products run up relatively modest server bills, but AI requires advanced hardware and runs it at capacity, and the current craze has created high demand for "compute" — the AI industry's shorthand term for processing power.

Why it matters: Historically, software profits have been based on the assumption that you write code once and make big profits from each new incremental user, but AI's dynamics are scrambling that model.

State of play: Here are a few approaches companies have taken to cover the cost of delivering generative AI features.

Microsoft charges for its AI-assisted copilots, including those in Office and GitHub, with prices ranging from $5 to $40 per user per month. Some copilots are included with certain enterprise subscriptions, while a number of Microsoft's consumer AI services remain free for now.

  • Box includes AI features for business customers subscribed to its Enterprise Plus tier and above. Each user will have access to 20 queries per month, with 2,000 additional queries available on a company level. Additional usage will require further payment.
  • Adobe is including a varying number of "generative credits" with its various free and paid plans for Creative Cloud, Express and Firefly. Starting November 2023, Adobe will offer additional credits via subscription, with plans starting at $4.99 per month for 100 Credits.

Between the lines: Companies are weighing whether to view generative AI features as selling points for existing services, or as new products.

  • Box CEO Aaron Levie told Axios he wanted to ensure that customers could experience the new AI features without having to add an extra charge. "We're really happy about this model," Levie said.

Microsoft, by contrast, already has more than 1 million paying users for the GitHub copilot that helps programmers automate their coding efforts, and will sell the Microsoft 365 copilot for Office starting Nov. 1.

Be smart: Companies are also eyeing several ways to limit the added cost associated with delivering generative AI features.

  • More work will also shift to run directly on PCs and smartphones.
  • "The system is going to optimize for what can be done locally, and then the cloud based on what you need. And that's going to be a huge offset of cost," Adobe chief strategy officer Scott Belsky tells Axios.

Yes, but: Even as companies become more efficient in handling today's tasks, new uses that require the cloud will keep emerging.

The other side: It's also not all about raising prices or charging more, says Belsky. He says Adobe also thinks it can add new subscribers thanks to its generative AI features.

  • "I think this is also countering a lot of the piracy we've had in the past," Belsky said, noting that only those with a subscription can access the generative AI features. "Anecdotally, on social media, I see tons of people being like, 'Oh, I finally have to pay for Photoshop.' "
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