How low can tokens go?

TL;DR: OpenAI is weighing a hefty price cut on tokens, according to a new Wall Street Journal report—a move that it expects Anthropic to mirror, as both head into IPOs whose sky-high valuations demand serious justification. The AI price wars could be a high-stakes test of which lab has dug the best moat—and whether customers care which AI brand and model they use or just want whatever gets the job done at the cheapest price.

What happened: How deep a markdown we’re talking about is unclear, but CEO Sam Altman recently called AI costs “a huge issue” and promised “more value for less spend.” This report comes just days after OpenAI announced that it had confidentially filed for an IPO (a week after Anthropic did the same). These long-feuding rivals are both seeking trillion-dollar valuations.

OpenAI’s gambit seems to be to lock in more customers than Anthropic as users wince at AI’s rising costs. In April, Anthropic passed OpenAI in business adoption for the first time, and its latest funding round vaulted its valuation past OpenAI’s. The ChatGPT maker is now giving chase, and its CFO expects enterprise to make up about half its revenue by the year’s end.

Discount math: As corporate execs cut back on their “tokenmaxxing” bonanzas, AI labs are left scrambling. But steep discounts squeeze margins at companies already bleeding money on compute. Anthropic only just projected its first operating profit this quarter, while OpenAI expects to burn roughly 14 times more cash than Anthropic before turning a profit around 2030, per earlier WSJ reporting.

Premium vs. pre-installed: Price cutting also threatens to set off a deeper test of where customers are actually willing to shell out. ChatGPT has far more users than Claude, but most are on the free tier, while Anthropic’s betting on its top-shelf models to make up for fewer total users. (Its brand-new Fable 5 model costs double what Opus 4.8 does—and will have usage-based pricing starting June 23.)

Still, the AI race could hinge on integration and convenience rather than having the flashiest model: While OpenAI and Anthropic duke it out, Apple and Google are baking AI into devices and programs billions of consumers already use. (And Google just slashed one of its AI subscriptions, too.)

Bottom line: AI companies are walking a tightrope between deep price cuts to draw people in and compute costs that keep climbing as AI use gets more token-hungry. How they keep their balance will be the first real proof of which lab—if any—has an edge that customers won’t abandon even for a discount. —WK