“I think commoditization doesn't necessarily mean it's bad. It just means that margin, yeah, falls quite a lot, but it also means that the market is very big. So you could argue that tomatoes are commoditized, but we still eat them.”
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch · Startups & Venture · October 2026
Asked what happens if AI models become commodities, Rao says six-month-old open models are already good enough for many jobs. He expects the margin to sit with hardware rather than model companies, noting that Nvidia takes the lion's share today.
Transcript
…they're pretty useful, right? Something that's six months old is still pretty darn good. So I would argue that's that's a hallmark of commoditization, right? The frontier is not the only thing that matters. For certain problems, it is, but in six months, that frontier will be in the open models. So
then help me out. What happens if the delivery mechanism or the output of all the infrastructure is then commoditized? Well,
I think commoditization doesn't necessarily mean it's bad. It just means that margin, yeah, falls quite a lot, but it also means that the market is very big. So you could argue that tomatoes are commoditized, but we still eat them. We still need them, you know? So we will have. A huge market for intelligence and the market will continue to grow, but the margins may not be huge. I actually don't think the model companies will be the ones who own the margin of the whole stack. It's not even true today. Like NVIDIA owns the margin of the stack today, right? I would say they're probably the one who take the lion's share of the margin.
A lot of people say to me the cost of inference will actually go massively down over the next few years. And we'll see the commoditization potentially of the inference market. Would you agree with that or not? Not agree with that.
Well, let's break it down. What does commoditization of the inference market mean? What that means is that the operator who's running inference, I assume. Yeah.
Yeah, absolutely. Your fireworks, your modal, your base tans, and the services that they provide. Because
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