The ugly economics of consumer AI

Consumer AI is drawing renewed attention after Meta's personal assistant Muse, OpenAI's Dots, and the Instinct assistant gained traction, TechCrunch reported. Instinct reached a $10 billion valuation on the strength of agentic errand-running for tasks such as booking travel, making restaurant reservations, and cancelling subscriptions, while Dots was released a day before the report.

Despite that activity, the economics of consumer AI remain difficult, the report said. Andreessen Horowitz's semiannual State of Markets report, drawing on a PNC research report from this summer, showed that as of May, 2.2% of consumers were paying for AI at an average spend of $31 a month. Andreessen described adoption and utilization as still early.

The report said growth in paying customers and their spending appears linear even as models improve. It cited Bank of America's finding in March that roughly 3% of U.S. consumers paid for AI, up 40% from the previous year, and a Menlo survey from September finding a quarter of adults use AI daily and half of those users pay for it.

Cost, rather than revenue, is the central problem, according to the report, because AI is unusually expensive to operate compared with social networking or cloud computing. Using Netflix's 325 million subscribers as a benchmark for a saturated online service, $34 per customer would yield $11 billion in annual revenue, less than a third of OpenAI's operating costs, the report said.

The report described an industry-wide shift toward the Anthropic model of enterprise contracts and vertical expansion. It said OpenAI's pivot to enterprise has been largely successful, with enterprise bookings reportedly doubling since July, and that the Dots launch included an enterprise angle for software engineers and agency creatives. Meta is already exploring the enterprise angle for Muse, while Instinct plans to take a cut of purchases made through its agent.