Roundup: How Much Cost are AI Customers Willing to Bear?
Technology companies are wrestling with two questions: What kind of premium do AI products command, and how long are their coattails?
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The Apples and Googles of the world regularly use enhanced features to justify higher price points. (Although the iPhone’s cost has more or less tracked inflation since 2016.) Not surprisingly, tech firms believe AI features add real value. As The Wall Street Journal observes, Microsoft boosted the monthly price of Office 365 by $30 per user when it added Copilot, a 50% increase from some preceding versions.
Such moves are inevitable right now, the Journal says, since “those new data centers and microchips aren’t going to pay for themselves.” But the AI business is still young, and it’s still laboring to figure out just how much value its capabilities add to a product.
No Gold Rush
In the medium and long terms, AI-powered devices may not guarantee higher revenue. Consumers have spent years spending more on streaming services, home deliveries and other tech-driven products, leading many to put a brake on their technology spending. Will iOS 18’s improved controls, organizational tools and flexibility add several hundred dollars’ worth of value to the latest iPhone? Of course, power users will think so, but what about the rest of us?
The picture is even muddier in the business world. Enterprise customers have been slow to add company-wide subscriptions to OpenAI’s, Alphabet’s and Microsoft’s tools for a variety of reasons, among them privacy, employee pushback or the risks associated with AI hallucinations. On top of that, companies are less willing to spend on AI technology. Research by search developer Lucidworks found that 63% of global organizations plan to increase AI spending in the next 12 months, notably down from 2023’s 93%.
That sets up a tough dynamic for technology players, who need to invest heavily in data infrastructure, new hardware and other areas if they’re going to offer AI in the first place. Some analysts expect customers to purchase new devices more frequently in order to keep up with AI, adding another rub to the business’s economic equations.
Of course, markets have always had to balance value and cost – that’s what they do. But we’ve yet to get a clear idea of an improved Siri’s worth, or increased productivity’s value when factors like reskilling or offboarding costs are factored in. In other words, the dynamics of AI economics are still shaking out, as vendors feel pressure to dive in deep while customers move toward the shallow end of the pool.
Poll
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