A price war in the artificial intelligence industry has begun, with big companies and startups turning to cheaper AI models to save costs. This is putting pressure on industry leaders OpenAI and Anthropic to lower their prices, which could hurt their ability to grow into profitable enterprises.
Cost-saving tools are helping businesses save on AI costs by dynamically switching among a mixture of third-party AI models and in-house AI systems built using freely available, open-source models. These tools can reduce costs for some AI-assisted work by as much as 95%, according to executives using the tools.
Open-source Chinese models have been rising in popularity across American businesses, with DeepSeek's share of AI usage rising from 1% in April to 17% in May on the startup Vercel's platform. The company has also seen more than 500 organizations swap from proprietary to open-source models.
Optimizing AI spending can make for complex math, but companies are increasingly evaluating models on price per task, rather than price per token. This is making it easier for companies to switch to cheaper models without sacrificing performance.
As the price war escalates, OpenAI and Anthropic are considering drastic cuts to their prices, but this could widen losses at the companies, which are already bleeding billions of dollars a year to pay for computing firepower to build and operate advanced AI systems.
