Cost Saving with AI: A Temporary Fix

The Counterintuitive Truth About AI Cost-Cutting

Should companies invest in AI primarily to save costs? Counterintuitively, the answer is likely NO in the long term. While this may sound surprising, there’s solid reasoning behind it.

Why Cost-Saving AI Strategies Lose Their Edge

When your company implements AI solely to reduce costs, any competitive advantage is temporary. Why? Because competitors who adopt the technology later will:

1. Learn from your implementation mistakes
2. Benefit from rapidly falling computation costs (thanks to Moore’s Law)
3. Eventually achieve the same cost savings with less investment

This phenomenon was explored in the 1999 paper “The Effects of Moore’s Law and Slacking on Large Computations”, which demonstrated how technology laggards can ultimately benefit from delayed adoption when technology costs are continuously falling.

A Better Approach: Product and Service Innovation

Instead of focusing exclusively on cost reduction, companies should leverage AI to improve their products and services. Here’s why:

• First-mover advantage: Quick adoption of AI for product enhancement creates barriers to entry
• Expanded use cases: As technology costs fall, new applications become viable
• Market expansion: Technology can “increase the pie” rather than just cutting costs

The Real Value Proposition

The most strategic approach isn’t asking “How can we do the same things cheaper?” but rather “How can we use this technology to deliver something our customers couldn’t get before?”

Note: This perspective intentionally challenges conventional wisdom. While it assumes somewhat idealized market conditions (polypolistic markets with high transparency) and a strong correlation between Moore’s Law and AI costs, the core insight remains valuable for strategic decision-making.