Why LLM providers sell access instead of consulting services?

Question

I don't understand the business model of AI companies like OpenAI and Anthropic: if the claims of nearly autonomous agentic product development are true, why would they sell access to their LLMs, in some cases at a loss, instead of providing consulting services at a fraction of the cost when compared to traditional human businesses?In other words, why would they sell AI as a sort of commodity instead of using it to provide an end product like IT consulting which is extremely profitable?

beernet · Accepted Answer

Consulting has weak margins compared to SaaS and scales poorly. Providing the interface for companies to spin up their own consultants (=Agents like Claude Code) is a superior business model in every dimension.

aristofun · Answer

Because selling sophisticated shovels in the gold rush is much more profitable than finding gold and trying to make and then sell jewelry

raw_anon_1111 · Answer

I work in consulting cloud + app dev. Every single project I’ve had for the last year and a half has been Gen AI related in some form. Most of them could have been done before Gen AI using traditional ML. It’s just much easier now.
That being said, consulting is a low margin race to the bottom business if your consultants email address isn’t @amazon.com (been there done that) or @google.com.
Google’s sales staff and SAs and other go to market to chase large deals are still not on par with AWS ProServe or Microsoft’s. It takes a lot of work to build up a good consulting department and no matter what, you still end up - unless you are a cloud provider -going with the Americans are the face for the customer and low paid folks from India do all of the work.
Consulting for cloud companies - either internal or external (where they give credits to customers for third party partners consulting) isn’t about the money they make on consulting, it’s about ongoing spend on their cloud providers and they can also afford to lavish credits on companies. The cloud provider have real profitable businesses

mrdependable · Answer

They get more data this way. I think their actual end goal is to supplant the software industry. I would not be surprised if there is an OpenAI OS in the next 5 years.

softwaredoug · Answer

With consulting you make some $X * N consultants on staff
With products you hope to make $X * N units sold. Staffing to build product + make those N sales takes something like log(N) sold units.
At least that's the dream. Consulting requires little upfront capital investment. Products often require a constant, but large, upfront capital investment

romanhn · Answer

I saw a number earlier that around 45% of US businesses have a paid subscription to an AI service/tool. You just can't get to this kind of scale and revenue with consulting.