There Is No Moat in Frontier Models

Set aside the ever-shortening gap between US-based closed frontier AI models and open-weights Chinese models; US consumer spending further suggests that there isn’t a moat for the frontier model makers. A recent study analyzed 114 billion credit card transactions gathered from 174 million consumers and found that a mere 2.9% of those consumers pay for a major AI service – nearly all on basic plans of $30/month or less, and only 20% to 45% of them stay with a provider for a year – lower than many other subscriptions. They treat the services as close substitutes and switch whenever a better model ships. Without a moat around the models, companies like OpenAI and Anthropic need to build value-added services and lean heavily on B2B to justify their eye-watering valuations.