Speaker 1: Zone Media. Hello and welcome to this week's Better Offline Monologue.
Speaker 1: I'm your host ed zetron over on my premium newsletter.
Speaker 1: This week I reported out a troubling situation with AI
Speaker 1: powered coding environment Cursor maybe, a company called any Sphere
Speaker 1: who unexpectedly changed their pricing in the middle of June
Speaker 1: as well as adding a two hundred dollars a month
Speaker 1: ultra subscription that well pissed everyone off and pissed off
Speaker 1: a lot of people for many different reasons. In fact,
Speaker 1: for some history, Cursor is or was the bell of
Speaker 1: the ball of the AI industry. They had five hundred
Speaker 1: million dollars of annualized recurring revenue, which means their highest
Speaker 1: month times twelve, making them the first high revenue startup
Speaker 1: outside of anthropic and open AI to actually show growth potential.
Speaker 1: There really is no one else like them out there
Speaker 1: at this number. I mean as Alpha sense four hundred
Speaker 1: million according to the AI data based from the information,
Speaker 1: but everyone else is powering around one hundred two hundred
Speaker 1: million arr and raising far more money. Everyone was really
Speaker 1: excited about Cursor. They were growing fast. Everyone loved them,
Speaker 1: and it was because their product allowed you to just
Speaker 1: build software just by typing stuff, and engineers liked it
Speaker 1: and regular people liked it. Not saying it was good
Speaker 1: or anything, just that people liked it, and they liked
Speaker 1: it because you gave you kind of unrestricted access to
Speaker 1: ward these models to build all this stuff. Now, what
Speaker 1: if I told you that perhaps they had grown to
Speaker 1: that five hundred million ARR number using techniques like allowing
Speaker 1: people to spend way more than they were paying for
Speaker 1: the service. Yeah, that's exactly what happened. Previously, Cursor's pricing
Speaker 1: was pretty simple. You had five hundred fast completions, meaning
Speaker 1: that you could ask Cursor to do something using model
Speaker 1: like Claudes sonnet for or Opus four, and it deduct
Speaker 1: requests from your allowance. The amount deductive was based on
Speaker 1: the model, with some models costing less than others, such
Speaker 1: as Anthropics claud for Opus costing more. Once you were
Speaker 1: out of those fast requests, Cursor would then put you
Speaker 1: in the slow lane, the unlimited slow lane, I should add,
Speaker 1: which nevertheless would let you use premium models, but you'd
Speaker 1: be put in the back of the queue and at
Speaker 1: peak times could be waiting some time before you get
Speaker 1: to your completion. You could also select auto and Cursor
Speaker 1: would select whatever was available the best model for the
Speaker 1: job at the time, never want to turn the best
Speaker 1: over to the company though. But on June seventeenth, twenty
Speaker 1: twenty five, Cursor launched that two hundred dollars a month
Speaker 1: ultraplan along with a new and confusing pro package It's
Speaker 1: very muddied. A new wording around said twenty dollars a
Speaker 1: month plan and how it would work going forward, claiming
Speaker 1: that they would be rolling out changes to make it
Speaker 1: more generous, but actually changing pricing to reflect new wording,
Speaker 1: offering unlimited agent requests and no real explanation as to
Speaker 1: what that meant, and no further mention of any request
Speaker 1: limits or what those requests or rate limits might be.
Speaker 1: The reality was, of course, far grimmer. Cursor users have
Speaker 1: found themselves heavily rate limited, especially on Anthropic models, but
Speaker 1: the so called unlimited agent requests mostly pushing towards Cursor's
Speaker 1: on frontier model, which users claim is nowhere near as
Speaker 1: effective as model SMOP and AI Andthropic. On June thirtieth,
Speaker 1: Curser made another change to their product features, changing unlimited
Speaker 1: agents to extended limits on agents, further money in pricing
Speaker 1: on a product that was once renowned for its simplicity
Speaker 1: and lack of limits. So this isn't good, is it.
Speaker 1: Silicon Valley's favorite coding startup has in the last few
Speaker 1: weeks completely changed how its customers interact with its product,
Speaker 1: both degrading the service and making it far more expensive
Speaker 1: in the process. They also allow you now to use
Speaker 1: usage based pricing. Now, this is the funny one. If
Speaker 1: you pay twenty dollars a month on Cursor, they will
Speaker 1: guarantee you twenty dollars a month of AI compute at least,
Speaker 1: so they're literally giving money away. They add a twenty
Speaker 1: percent fee on top of compute. But wow, so you're
Speaker 1: making twenty percent morgin. Now you're fucking not. They're losing
Speaker 1: money on everything. I'm sure of them. But it's strange.
Speaker 1: It's strange, and it's bad. But this is also textbook
Speaker 1: and shitification. Corey doctor O's term for when platforms offer
Speaker 1: a high quality product to gain a large user base,
Speaker 1: usually through convenience or great value. Then the grade the
Speaker 1: service over time to make more money as a means
Speaker 1: of maximizing value shareholders or making money themselves. It's also
Speaker 1: part of my rot economy. Thesis. The growth of all
Speaker 1: costs thinking has dominated the tech industry, and I'd argue,
Speaker 1: thanks to the proliferation of business idi it's controlling everything
Speaker 1: that they've drained some of the logic behind in certification away,
Speaker 1: because very few of these companies actually have a plan
Speaker 1: for sustainability, let alone profitability. Generally, in certification gets people
Speaker 1: through the door and makes the service totally impossible to avoid,
Speaker 1: makes it essential. That's really difficult to do with a
Speaker 1: paid software product like Cursor, because AI compute is so
Speaker 1: fucking expensive. It's so expensive, so Cursor has decided to
Speaker 1: en shittify without making sure that they have something essential.
Speaker 1: But the thing is, I had texted Cory about this.
Speaker 1: I think this actually is something quite different. I think
Speaker 1: this is the world's first chain in shitification. My belief
Speaker 1: is simple. Any Sphere, which is the company that makes Cursor,
Speaker 1: by the way, is despite getting nine hundred million dollars
Speaker 1: in funding in early May, running out of money, or
Speaker 1: at least believes that continue to operate its business in
Speaker 1: the way it did less than a month ago would
Speaker 1: cause it to do so. But why the sudden changes,
Speaker 1: Why the knife in the heart of their customers just
Speaker 1: after raising nearly a billion dollars. It's simple, it's a
Speaker 1: chain and citification. Anthropic jacked up their prices, and so
Speaker 1: did open Ai. On May twenty second, twenty twenty five,
Speaker 1: a few weeks after Cursor raised nine hundred million dollars
Speaker 1: and Thropic launched both claud Sonet and claud Opus four.
Speaker 1: You might say Claude four Opus of Claude force Sonet.
Speaker 1: I don't care. But these were two new powerful as
Speaker 1: judged by benchmarks made specifically for large language models. And
Speaker 1: I should add that the expensive claud Opus four was
Speaker 1: more focused on coding benchmarks. This is an important detail now.
Speaker 1: Eight days later, on May thirtieth, twenty twenty five, patron
Speaker 1: Anthropics API documentation appeared for the first time called service tiers,
Speaker 1: adding priority tiers for enterprise stats that didn't want to
Speaker 1: and I quote sorry, I mean did want to and
Speaker 1: I quote provide a guarantee around the infrequency of server
Speaker 1: overloaded errors even during peak time. Hmm, that's not good.
Speaker 1: Anthropic service tiers require a multi month upfront commitment on
Speaker 1: how many tokens per minute your startup will use, but
Speaker 1: also add an insidious charge around prompt casing. Now Prompt
Speaker 1: cashing is when when you put something into a model,
Speaker 1: such as a code base in the case of a
Speaker 1: coding startup, or I don't know a great deal of
Speaker 1: stuff about how a model might want to act, you
Speaker 1: put it in the cash so that it kind of
Speaker 1: like RAM, it just kind of reads off of it
Speaker 1: instead of rewriting and rewriting and rewriting. So they've added
Speaker 1: a vig to it or attacks whatever you call it,
Speaker 1: a toll perhaps, and they're now charging and this is
Speaker 1: really fucking insidious, either one hundred and twenty five percent
Speaker 1: or two hundred percent of the cost of casing information
Speaker 1: that you need to access it more readily. And I
Speaker 1: should add this is only if you want the Priority tier.
Speaker 1: And another thing, coding startups are extremely prompt cash heavy,
Speaker 1: kind of fucked up right, very fucked up, and they're
Speaker 1: not the only ones doing it. On June twenty fifth,
Speaker 1: twenty twenty five, open Ai also launched Priority processing for
Speaker 1: API customers. They claim it's the payers you go to
Speaker 1: where you pay higher API prices for and I quote
Speaker 1: predictable low latency. However, despite this being payers you go,
Speaker 1: the service is only available for their enterprise customers who
Speaker 1: have made an up prompt commitment much like Anthropic does,
Speaker 1: the difference being they are not trying to tax you
Speaker 1: on prompt caching now. Cursor CEO Michael Truell also said
Speaker 1: when announcing their agree just two hundred dollars a month
Speaker 1: plan that it was only made possible by multi year
Speaker 1: partnerships with OpenAI, Anthropic, Google, and Xai. In short, I
Speaker 1: think that nine hundred million dollars that Cursor got may
Speaker 1: have immediately been handed to or committed to the major
Speaker 1: model developers. They got looted baby. And now what makes
Speaker 1: this weirder is that Cursor is also Anthropic's largest customer,
Speaker 1: with sources claiming that they're such a large customer that
Speaker 1: they're taxing anthropics infrastructure and making them run out of GPUs. Now.
Speaker 1: I should also add that Cursor isn't the only one
Speaker 1: that's recently dramatically changed their prices. Vibe coding startups like
Speaker 1: replt and Lovable Bits both have had to do so
Speaker 1: in the last month. And I think this is just
Speaker 1: the beginning of something really, really, really bad. I believe
Speaker 1: that Anthropic did this either as a deliberate attempt to
Speaker 1: price gouge its largest customers, and or as a means
Speaker 1: of increasing revenue and its money losing software. These changes
Speaker 1: that deliberate aggressive and targeted price increases, and they were
Speaker 1: timed with the launches of claud for Opus and Sonnet,
Speaker 1: which suggests that Anthropics costs have dramatically increased with these models,
Speaker 1: so much that simply increase in the cost per million
Speaker 1: tokens is in sufficient. It's my belief that the launchers
Speaker 1: of both claud Opus and to a lesser extent, son
Speaker 1: It have caused en up hevil in Anthropics costs and
Speaker 1: compute demands, which in turn forced them to start increasing
Speaker 1: costs on their customers. However, Anthropic has I believe, realized
Speaker 1: that there is no real way to just increase the
Speaker 1: cost of Opus and Sonnet for further on just the
Speaker 1: amount of tokens that the customer might use, and that
Speaker 1: doing so might push away smaller developers, which wouldn't make
Speaker 1: them more money. So they decided to find a way
Speaker 1: to specifically exploit the finances of their largest customers coding startups,
Speaker 1: in a way that won't be immediately obvious or that
Speaker 1: would spook non coding assistant customers. Except I'm a crafty
Speaker 1: little fuck and I look at everything all the time.
Speaker 1: I do this for fun. I don't do this because
Speaker 1: I have to listen to me. Wario Amadee. If you're
Speaker 1: listening to this, I'm watching you. I have archive dot
Speaker 1: org and a million diet cokes. Anyway, last year I
Speaker 1: talked about the subprime AI crisis, where almost the entire
Speaker 1: tech industry is bought in on a technology sold at
Speaker 1: this vastly discounted rate, and they've heavily centralized and subsidized
Speaker 1: it too. And I predicted one major thing that these
Speaker 1: model developers would eventually have to find a way to
Speaker 1: make their costs work, that they would have to find
Speaker 1: a way to crank up costs on their customers, because
Speaker 1: otherwise they would just continue burning money. I still think
Speaker 1: they are doing so, and I think that's what's happening here.
Speaker 1: I think anthropic and OpenAI to a lesser extent of
Speaker 1: realized that they need to start making money back on
Speaker 1: these fuckers, and they're doing it. Except the fact that
Speaker 1: the companies of immediate companies like Cursor and Repler have
Speaker 1: immediately had to change their prices suggest that maybe not
Speaker 1: one of these businesses makes sense. Maybe this whole time
Speaker 1: this thing was unsustainable. Maybe it turns out the general
Speaker 1: if AI doesn't have the kind of business returns you
Speaker 1: need to run a startup. If only someone had said something. Remember,
Speaker 1: look see how fucked up saying Remember but I'm not
Speaker 1: editing it out. This is an honest podcast. But seriously, everyone,
Speaker 1: remember the pale horses. Rate limits, service interruptions, price increases,
Speaker 1: trouble raising funding, and trouble with money. The horses are
Speaker 1: drawing nearer and telling you we're coming to the end
Speaker 1: of this. I don't know if it will be soon,
Speaker 1: I don't know if it'll be next year. But nothing
Speaker 1: about this suggests that things are going well.