AI Firms Pay Partners to Use Software

Artificial intelligence companies, including OpenAI and Anthropic, are engaging in unconventional financial arrangements where they subsidize their partners' adoption of AI models. OpenAI's joint venture with private equity firms involves a commitment of up to $1.5 billion to encourage its enterprise tools' use. Similarly, Anthropic is investing $200 million into a venture with equity firms to promote its AI models. Google Cloud has also established a $750 million fund to subsidize the adoption of its Gemini AI models by consulting firms.

These deals go beyond typical incentive structures, raising questions about the authenticity of revenue growth. The history of companies financing their own sales, notably in the late 1990s telecom equipment sector with firms like Lucent and Nortel, serves as a stark warning. Those companies extended massive loans to customers, which eventually led to defaults and significant financial losses when the economic climate shifted.

Investors are advised to scrutinize AI companies' financial figures, especially as some, like OpenAI, are projected to incur substantial losses despite revenue surges. The current lack of transparency in distinguishing subsidized sales from organic revenue makes thorough due diligence crucial. Analysts recommend evaluating revenue support, renewal economics for non-subsidized businesses, and outcome-based contracting to gauge true demand.

The long-term sustainability of AI business models will depend on demand independent of temporary financial support. The current trend of AI vendors financing distribution and guaranteeing returns to investors signals a need for deeper examination by potential investors, recalling past market corrections driven by similar financial engineering.