DeepSeek disrupts big tech and exposes the inefficiencies of expensive AI

Last week, OpenAI CEO Sam Altman announced ChatGPT users will have unlimited access to its upcoming GPT-5 release free of charge. He said it is being done to simplify the product line. With GPT-5, users will no longer have to choose between (and the company won’t have to support) multiple generative AI models. 

It’s a smart business decision, but one has to wonder if DeepSeek’s arrival also contributed to the move. If so, congratulations to OpenAI. It is the only big AI company to respond to the challenge of a competitor whose product costs at least 90% less. 

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Google, Meta, Microsoft and Amazon appear to be in deep DeepSeek denial. They aren’t technologically or intellectually ready to respond to serious competition. The tech giants seem determined to continue spending lavishly supporting what we now know is a less efficient and needlessly expensive AI model. 

Keep on spending

Earning reports released earlier this month outlined plans to spend over $300 billion collectively on AI in the coming fiscal year, a notable increase over 2024. 

• Amazon will spend more than $100 billion on AI and related infrastructure in the coming year, according to The Wall Street Journal.
• Google’s parent company, Alphabet, said AI data centers are driving $75 billion in capital expenditures this year, up from $52.5 billion in 2024.
• Microsoft said it plans to spend $80 billion on AI data centers in the fiscal year ending in June. 
• Meta will spend $60 billion to $65 billion in planned capital expenditures this year, much of it related to AI. That is roughly 70% higher than analysts had projected.

None of this suggests they are pivoting to less-expensive AI models. Why aren’t they? Perhaps because that’s all they know how to do. A lack of competition made these companies exceptionally wealthy—so wealthy that they can spend hundreds of billions of dollars on AI without needing to see much, if any, ROI.

“DeepSeek is the canary in the coal mine,” former FTC chief Lina Khan wrote in The New York Times. “It’s warning us that when there isn’t enough competition… It should be no surprise that our big tech firms are at risk of being surpassed in A.I. innovation by foreign competitors. After companies like Google, Apple and Amazon helped transform the American economy in the 2000s, they maintained their dominance primarily through buying out rivals and building anticompetitive moats around their businesses.”

From innovators to laggards

She points out that even though Google created the architecture behind the AI revolution in 2017, nothing much happened until researchers left to join or found new companies. 

Former Google chief Eric Schmidt echoes her warning. He says big tech’s reliance on proprietary, closed-source AI models puts it at risk of losing out to China and DeepSeek’s open-source AI.

“If we don’t do something about that, China will ultimately become the open-source leader and the rest of the world will become closed-source,” Schmidt told the Financial Times. He said that if we don’t invest in open-source technologies, it could hold back scientific discoveries at Western universities, which might not have the budget for expensive closed models.

Competition drives innovation. Google became the search engine giant because it out-innovated the competition. All companies tend towards monopoly. They want to operate without competition to set prices without worrying about what others do. 

Google ultimately achieved this in search by “buying out rivals and building anticompetitive moats.” That’s why it keeps losing antitrust cases in the U.S. and EU.

Free markets require regulation

How do we prevent these monopolistic practices? We do it with something that the Trump administration is gutting. Right now, U.S. government agencies and their regulatory powers are being run through a wood chopper. 

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This is ostensibly being done in the name of “free markets.” However, those who claim less regulation will free businesses forget a key fact about capitalism.

Adam Smith, the father of modern economics and the one who defined capitalism, was all for free markets. Wait, that’s only partly correct. He was all for free and fair markets. Markets are only fair when they have a referree regulating them. There’s a word for unregulated markets. That word is rigged.