Better Offline - The Case Against Generative AI (Part 3)

Episode Date: October 2, 2025

In part three of this week’s four-part case against generative AI, Ed Zitron walks you through how “AI replacing software engineers” is a myth spread by the media and investors - and how Microsoft only has 8 to 12 million active paying customers for Microsoft 365’s AI Copilot out of 440 million users. Latest Premium Newsletter: OpenAI Needs A Trillion Dollars In The Next Four Years: https://www.wheresyoured.at/openai-onetrillion/ YOU CAN NOW BUY BETTER OFFLINE MERCH! Go to https://cottonbureau.com/people/better-offline and use code FREE99 for free shipping on orders of $99 or more. --- LINKS: https://www.tinyurl.com/betterofflinelinks Newsletter: https://www.wheresyoured.at/ Reddit: https://www.reddit.com/r/BetterOffline/  Discord: chat.wheresyoured.at Ed's Socials: https://twitter.com/edzitron https://www.instagram.com/edzitronSee omnystudio.com/listener for privacy information.

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At our level, at this scale, being able to fail in front of the entire world. Like, I can do anything. I can do anything. Listen to Hurtle with Emily Abadi on the IHeart Radio app, Apple Podcasts, or wherever you get your podcasts. Presented by Capital One, founding partner of IHeart Women's Sports. It's your responsibility to not just seek help, but to identify that you need help. This is Mental Health Awareness Month. Tune in to the podcast, Just Healed with Dr. Jay, and take real steps toward healing, growth,

and becoming your best self. From understanding your mental health to doing the work, we break down practical tools, real conversations, and the mindset shifts you need to move forward and thrive. It's time to stop putting your healing on hold and start doing something about it. Listen to Just Heel with Dr. Jay on the iHeart Radio app, Apple Podcasts, or wherever you get your podcast. AllZone Media Hello and welcome to Bearer Offline. and I'm of course your host Ed Zittron.

We're in the third episode of our four-part series where I give you a comprehensive explanation as to the origins of the AI bubble, the mythology sustaining it, and why it's destined to end really, really badly. Now, if you're jumping in now, please start from the very beginning. The reason why this is a four-parter, my first ever,

is because I want it to be comprehensive and because this is a very big subject with a lot of moving parts and even more bullshit. A few weeks ago, I published a premium newsletter that explained how everybody is losing money on generative AI, in part because the costs of running AI models is increasing, and in part because the software itself doesn't do enough to warrant the costs associated with running them, which are already subsidised and unprofitable for the model providers. Outside of Open AI, and to a lesser extent, Anthropic, nobody seems to be making much revenue,

with the most successful company being any sphere, makers of AI coding tool cursor, which hit $500 million of annualized, so $41.6 million in one month, a few months ago, just before Anthropic and Open AI jacked up the prices for priority processing on enterprise queries, raising their operating costs as a result. In any case, that's some piss-poor revenue for an industry that's meant to be the future of software. Smartwatches are projected to make $32 billion this year, and as I've mentioned in the past, the Magnificent Seven expect to make $35 billion or so in revenue from AI this year, and I think in total, when you throw in core, even all them, it's barely $55 billion in total. Even Anthropic and Open AI seem a little lethargic, both burning billions of dollars,

while making, by my estimates, no more than $2 billion in Anthropics case this year so far, and $6.26 billion in 2025 so far for Open AI, despite projections of $5 billion and $13 billion, respectively. Outside of these two, AI startups are floundering, struggling to stay alive and raising money in several hundred million dollar bursts as their negative gross margin businesses flounder. As I dug into a few months ago, I could find only 12 AI-powered companies making more than $8.3 million a month,

with two of them slightly improving their revenues, specifically AI search company Poplexity, which is now hit $150 million an ARR in, or $12.5 million a month, and AI coding startup Replyer, which has hit the same amount. Both of these companies burn ridiculous amounts of money. Perplexity burned 164% of its revenue on Amazon Web Services, OpenAI and Anthropic last year, and while Replit hasn't leaked its costs, the information reports its gross margins in July were 23%, which doesn't include the cost of its free users.

which you simply have to do with LLMs as free users are capable of costing you a shit ton of money. And some of you might say that's how they do it in software. Well, guess what? Software doesn't usually connect you to a model that can burn, I don't know, 10 cents, 20 cents every time they touch it, which may not seem like much, but when you're making three dollars on someone and they don't convert, it does. Problematically, your paid users also cost you more than they bring in as well. In fact, every user loses you money in generative AI because it's impossible to do cost control, consistent manner. A few months ago, I did a piece in Anthropic losing money on every single

Claude Code subscriber, and now I'm going to walk you through the whole story in a simplified fashion, because it's quite important. So Claude Code is a coding environment that people used, or I should really say, try to use, to build software using generative AI. It's available as part of Anthropics $20, $100, and $200 a month, Claude subscriptions, with the more expensive of subscriptions having more generous rate limits. Generally, these subscriptions are all you can eat. You can use them as much as you want until you hit limits rather than paying for the actual tokens you burn.

When I say burn tokens, and someone reached out saying I should specify this, I'm describing how these models are traditionally built. In general, you'll build at a dollar per million input tokens, as in user feeding in data, and output tokens, the output created. So you wouldn't get one token built, so every million you get charged. So, for example, Anthropic charges $3 per million input tokens and 6 million output tokens to use its Claude Sonnet for model. And it's about, I think, well, a word before tokens. I should really look that up.

It also gets more complex as you get into things like generating code. Nevertheless, Claude code has been quite popular. And a user created a program called CCU usage, which allowed you to see your token burn. The amount of tokens you were using, you were actually burning using anthrable. models while using Claude Code versus just getting charged a month and not knowing, and many were seeing that they were burning in excess of their monthly spend. To be clear, this is the token price based on Anthropics' own pricing, and thus the cost to Anthropic are likely not identical. So I got a little clever. Using Anthropics' gross profit margins, I chose 55%, and then a few weeks

after my article, 60% was leaked, I found at least 20 different accounts of people costing Anthropic anywhere from 130% to 384% of their subscription. There's also a few weeks of their subscription. There's also now a leader board called Vibrank, where people compete to see how much they burn, with the current leader burning and I shit you not $51,291 over the course of a month. Anthropic is, to be clear, the second largest model developer and has some of the best AI talent in the industry. It has a better handle on its infrastructure than anyone outside of big tech and open AI, and it still cannot seem to fix this problem, even with weekly rate limits brought in at the end of August. While one could assume that Anthropic is simply letting users

run wild, my theory is far simpler. Even the model developers have no real way of limiting user activity, likely due to the architecture of generative AI. I know it sounds insane, but at the most advanced level, even there, model providers are still prompting their models, and whatever rate limits may be in place appear to at times get completely ignored, and there doesn't seem to be anything they can do to stop it. Now really, Anthropic counts amongst its capitalist Apex predators, one lone Chinese man, who spent $50,000 to their compute in the space of a month fucking around with Claude even if Anthropic was profitable. It isn't, and we'll burn billions of dollars this year, a customer paying $200 a month ran up $50,000 in costs immediately devouring the margin of any

user running the service that day, that week, or even that month. Even if Anthropics' costs are half the published rates, they're not, by the way. one guy amounted to 125 users' worth of monthly revenue. This is not a real business. That's a bad business without of control costs, and it doesn't appear anybody has these costs under control. And, faced with the grim reality ahead of them, these companies are trying nasty little tricks on their customers to juice more revenue from them. A few weeks ago, Replit, an unprofitable AI coding company,

released a product called Agent 3, which promised to be 10 times more autonomous and offer infinitely more possibilities, testing and fixing its code, constantly improving your application behind the scenes in a reflection loop. Sounds very real. Sounds extremely real. It's so real, but actually it isn't. In reality, this means you'd go and tell the model to build something, and it would go and do it, and you'll be shocked to hear that these models can't be relied upon to go and do anything. Please note that this was launched a few months after Replit raised their prices, shifting to obfuscated effort-based pricing that would charge the full scope of the agent's work,

and if you're wondering what the fuck that means, so are their customers. Agent 3 has been a disaster. Users found the tasks that previously cost a few dollars were spiraling into the hundreds of dollars, with the register reporting one customer found themselves within a thousand dollar bill after a week, and I quote them. I think it's just launch pricing adjustment. Some tasks on new apps ran over an hour and 45 minutes and only charged $4 to $6, but editing pre-existing apps seems to cost most overall. I spent 1K this week alone.

and they told that to the register, by the way. Another user complained that cost skyrocketed without any concrete results, and I quote the register here. I typically spent between $100 and $250 a month. I blew through $70 in a night at Agent 3 launch, and another editor wrote, alleging the new tool also performed some questionable actions. One prompt brute forced its way through authentication, redoing auth and hard resetting a user's password to what it wanted to perform app testing on a form, the user wrote.

I realize that's a little nonsensical, but long story short, it did a bunch of shit. it wasn't asked to. As I previously reported in late May, early June, both Open AI and Anthropic cranked up the pricing on their enterprise customers, leading Replit and Cursor both shifting their prices upward. This abuse has now trickled down to the customers. Replet has now released an update unless you choose how autonomous you want Agent 3 to be, which is a tacit admission that you can't trust coding LLMs to build software. Repplet's users are still pissed off, complaining that Replaint is charging them for an activity when the agent doesn't do anything, a consistent problem I've found across Redditors.

While Reddit is not the full summation of all users of every company everywhere, it's a fairly good barometer of user sentiment, and man, a user's pissy. And now here's why this is bad. Traditionally, Silicon Valley startups have relied upon the same model, have grow really fast and burn a bunch of money, then turn the profit lever. AI does not have a profit lever, because the raw costs of providing access to AI models are so high, and they're only increasing, that the basic economics of how the tech industry sell software don't make sense.

Another podcast from some SNL late night comedy guy, not quite. Unhumor me with Robert Smygel and friends. Me and hilarious guests from Jim Gaffigan to Bob Odenkirk to David Letterman, help make you funnier. This week, my guest, SNL's Mikey Day and head writer

Streeter Seidel, help an a cappella band with their between songs banter. There's the worst singer in the group. The worst? Yeah. Me. Is there anything to the idea that because you're from Harvard, you only got in because your parents made a huge donation. The yard birds, right?

That's the name. The Harvard Yardt. They're open. Do you have a name suggestion? We're open. Since you guys are middle-aged. One erection. Listen to humor me with Robert Smigel and Friends on the I-Heart Radio app, Apple Podcasts, or wherever you get your podcast.

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Think IHeart. Streaming, radio, and podcasting. Call 844-844-I-Hart to get started. That's 844-8-4-4-4-4. life throws hurdles big and small. The question is, how do you conquer them? On hurdle with Emily Abadi, we sit down with the most inspiring women in sports and wellness, professional athletes, coaches, and Olympic champions to talk about the challenges that shaped them and the mindset that keeps them going from the WMBA standout Kate Martin and rising hockey star Layla Edwards.

If a boy can do it, I don't see why a girl can't. Like, I've never understood that. Like, it didn't make sense in my brain. It's hard to be in spaces that no one looks like you, but don't ever feel like you don't feel on. Don't let that be the reason you don't do it. An Olympic champs Gabby Thomas and Katie Ladeki. The ability to show a gold medal to someone and have their face light up and smile, that means the world to me. And that's what motivates me to win more gold medals.

At our level, at this scale, like being able to fail in front of the entire world. Like, I can do anything. I can do anything. Because resilience isn't just about winning. It's about showing up, even when it's hard. Listen to Hurtle with Emily Abadi on the IHeartRadio app, Apple Podcasts, or wherever you get your podcasts. Presented by Capital One, founding partner of IHeart Women's Sports. There are times when the mind becomes a difficult place to live.

This is David Eagleman with the Inner Cosmos podcast, and for Mental Health Awareness Month, we're dedicating a series to understanding the mind when it struggles. I'm joined by doctors, researchers, and those with lived experience. We'll talk with singer-songwriter Jewel about anxiety. I started living in my car, and then my car got stolen. I was shoplifting. I was having panic attacks. I was agoraphobic.

And making it through hardship. To be present is a learned skill, and it's hard to be present. We'll talk with John Nelson about clinical depression and the brain implant that saved his life. What I learned is that procedure made me happy because I'm disease-free. And we'll talk with leading experts. like Judd Brewer about anxiety and John Hirschfield about obsessive compulsive disorder and the science of how the brain can change. This is a month of deeply personal and honest conversations about what happens when the brain goes off course and what we can do about it. Listen to Inner Cosmos on the

IHeart Radio app, Apple Podcasts, or wherever you get your podcasts. I'll reiterate something I wrote a few weeks ago. A large language model users, infrastructural burden varies wildly between users and use cases. While somebody asking chat GPT to summarize an email might not be much of a burden, somebody asking chat GPT to review hundreds of pages of documents at once, a core feature of basically any $20 a month subscription, could eat up to eight GPUs at once. To be very clear, a user that pays $20 a month could run multiple queries like this a month, and there's not really a way to stop them. Unlike most software products, any errors in producing an output from a large language model have a significant opportunity cost. When a user doesn't like an

output or the model gets something wrong, which it's guaranteed to do, or the user realizes they forgot something, the model must make a further generation or generations. And even with caching, which anthropics added a toll to, there's a definitive cost attached to any mistake. Large language models are, for the most part, lacking in any definitive use cases, meaning that every user is, even with an idea of what they want to do, experimenting with every input and output. In doing so, they create the opportunity to burn more tokens, which in turn creates an infrastructural burn on GPUs, which cost a lot of money to run. The more specific the output, the more opportunities there are for monstrous token burn, and I'm specifically thinking about coding with LLMs.

The token heavy nature of generating code means that any mistake, suboptimal generations or straight-up errors will guarantee further token burn. Even efforts to reduce compute costs by, for example, pushing free users or those on cheap plans, the smaller, less intensive models, have dubious efficacy. As I talked about in a previous episode, OpenAI splitter model in the GPT version of ChatGPT requires vast amounts of additional compute in order to route the user's request or the appropriate model, with simpler requests going to small models and more complex ones being shifted to reasoning models, and it makes it impossible to cache part of the input. As a result, it's not really clear whether it's saving OpenAI any money, and indeed, kind of suggests it might be costing them more. In simpler terms, it's very, very, very difficult to imagine what one user, free or otherwise might cost. and thus it's hard to charge them anything on a monthly basis or tell them what a service might actually cost them on average. And this is a huge, huge problem with AI coding environments. But let's talk about Claude Code again, Anthropics Code Generator tool.

According to the information, Claude Code was driving nearly $400 million in annualized revenue, roughly doubling from a few weeks ago on July 31st, 2025. The annualized revenue works out to about $33 million a month in revenue for a company that predicts it will make at least $416 million a month by the end of the year, and for a product that has become, for a time, the most popular coding environment in the world from the second largest and best-funded AI company in the world. Is that it? Is that fucking it? Is that all that's happening here? $33 million, all of which is unprofitable, after it felt, at least based on social media chatter and discussing with multiple different engineers, that Claude Cod had become ubiquitous with anything

to do with LLMs and coding. To be clear, Anthropic's Sonnet and Opus models are consistently some of the most popular for programming an open router, an aggregator of LLM usage, and Anthropic has been consistently named as the best at coding, whether or not I feel that way is irrelevant. Some bright spark out there is going to send it Microsoft's GitHub copilot as 1.8 million paying subscribers, and guess what? That's true. In fact, I reported it. Here's another fun fact. The Wall Street Journal reported that Microsoft loses on average $20 a month per user, with some users costing the company as much as $80. bucks, and that's for the most popular product. But wait, wait, wait, wait, hold up. Wait. I read some shit in the newspaper. Aren't these LLM code generators replacing actual human engineers? And thus, even if they cost way more than $20, $100 or $200 a month, they're still worth it, right? They're replacing an entire engineer. Oh, my sweet summer child. If you believe the New York Times

are other outlets that simply copy and paste whatever Anthropic CEO Wario Amaday says, you'd think that the reason that software engineers are having trouble finding work is because their jobs are being replaced by AI. This grotesque, manipulative, abusive and offensive lie has been propagated through the entire business and tech media without anybody sitting down and asking whether it's true, or even getting a good understanding of what it is that LLMs can actually do with code. Members of the media, I am begging you, stop, stop doing this, stop publishing these fucking headlines. You're embarrassing yourself. Every asshole is willing to give a quote saying that coding is dead and that every executive is willing to burp out some nonsense about replacing all of their engineers,

but I'm fucking begging you to either use these things yourself or speak to people that do. I am not a coder. I cannot write or read code. Nevertheless, I'm capable of learning, and I've spoken to numerous software engineers in the last few months, and basically, I've reached a consensus that this is kind of useful sometimes. However, one time a very silly man with an increasingly squeaky voice said that I don't speak to people who use AI tools, so I went and spoke to three notable, experienced software engineers and ask them to give me the straight truth about what coding LLMs can do. Now, for the purposes of brevity, I'm going to use select quotes from what these people said,

but if you want to read the whole thing, you can check out the newsletter. First, I'm going to read what Carl Brown of the Internet of Bugs said, and add him on the show a few months back. He's fantastic. So, most of the advancements in programming languages, technique and craft in the last 40 years have been designing safer and better ways of tying these blocks together to create large and larger programs with more complexity and functionality. Human use these advancements to arrange these blocks in logical abstraction layers so we can fit an understanding of the layers interconnections in our heads as we work, diving into blocks temporarily as needed.

This is where AIs fall down. The amount of context required to hold the interconnections between these blocks quickly grows beyond the AI's effective short-term memory, in practice much smaller than its advertised context window-sized, and the AIs lack the ability to reason about the abstractions as we do. This leads to real-world code that's illogically layered, hard to understand, debug and maintain. Carl also said, Code generation AIs from an industry standpoint are roughly the equivalent of a slightly below average computer science graduate fresh out of school without any real world experience, only ever having written programs to be printed and graded. That's bad, because as he

pointed out, whereas LLMs can't get past this summer intern stage, actual humans get better, and if we're replacing the bottom rung of the labour market, there won't be any mid-level or senior developers later down the line. Next, I asked Nick Choresh of I will fucking pile drive you if you mention AI again what he thought. LLMs, he said, will sometimes solve a thorny problem for me in a few seconds, saving me some brain power. But in practice, the effort of articulating so much of the design work in plain English and hoping the LLM emits code that I find acceptable is frequently more work than just writing the code. For most problems, the hardest part is the thinking, and LLMs don't make that part any easier. I also talked to Colt Voguee of no, AI is not

making AI engine 10x is productive, who we also had on the show recently, and he said this. LLMs often function like a fresh summer intern. They're good at solving the straightforward problems that code has learned about in school, but they are unworldly. They do not understand how to bring lots of solutions to small, straightforward problems together into a larger hole. They lack the experience to be wholly trusted, and trust is the most important thing you need to fully delegate coding tasks. In simpler terms, LLMs are capable of writing code but can't do software engineering because software engineering is the process of understanding, maintaining and executing code to produce functional software.

And LMs do not learn, cannot adapt, and, to paraphrase something Carl Brown said to me, break down the more of your code and variables you ask them to look at once. So you can't replace a software engineer with them. If you are printing this in a media outlet and have heard this sentence, you are fucking up. You really are fucking up. I'm really, members of the media hearing this, you need to change. You need to change on this one. You are doing software engineers dirty.

Another podcast from some SNL late-night comedy guy, not quite. Unhumor me with Robert Smygel and friends. Me and hilarious guests from Jim Gaffigan to Bob Odenkirk to David Letterman, help make you funnier. This week, my guest, SNL's Mikey Day and head writer Streeter Seidel, help an a cappella band with their between songs banter. The worst singer in the group?

The worst? Yeah. Me. Is there anything to the idea that because you're from Harvard, uh, you only got in because you're, parents made a huge donation. The group.

The yard birds, right? That's the name. The Harvard Yardt Yardt. They're open. Do you have a name suggestion? We're open. Since you guys are middle-aged, one erection. Listen to Humor Me with Robert Smigel and Friends on the I-Heart Radio app, Apple Podcasts, or wherever you get your podcast. Humor me. I need some jokes to make me seem funny. Run a business and not thinking about podcast.

Think again. More Americans listen to podcasts than ad-supported streaming music from Spotify and Pandora. And as the number one podcaster, I-Hearts twice as large as the next two combined. So whatever your customers listen to, they'll hear your message. Plus, only I-Hart can extend your message to audiences across broadcast radio. Think I-Hart. Streaming, radio, and podcasting. Call 844-I-Hart to get started. That's 844-8-4-4-I-Hart. ball. The question is, how do you conquer them? On hurdle with Emily Abadi, we sit down with the most inspiring women in sports and wellness, professional athletes, coaches, and Olympic champions to talk about the challenges that shaped them and the mindset that keeps them going from the WMBA standout, Kate Martin and rising hockey star Layla Edwards. If a boy can do it, I don't see why a girl can't. Like, I've never understood that. Like, it didn't make sense in my brain. It's hard to be in spaces that no one looks like you, but don't ever feel like you don't feel on. Don't let that be the reason, do it. An Olympic champs Gabby Thomas and Katie Ladecki. The ability to show a gold medal to someone

and have their face light up and smile, that means the world to me. And that's what motivates me to win more gold medals. At our level, at this scale, like being able to fail in front of the entire world. Like, I can do anything. I can do anything. Because resilience isn't just about winning. It's about showing up, even when it's hard. Listen to Hurtle with Emily Abadi on the IHeart radio app, Apple Podcasts, or wherever you get your podcasts. Presented by Capital One, founding partner of I Heart Women's Sports. Hey, everyone, it's Ryder Strong and Will Ferdell from PodMeets World. And now the Pod Meets Twirled podcast.

We're two men who were completely clueless to reality TV, who now have covered Dancing with the Stars, traitors, and we're gearing up for the season finale of Survivor. So yeah, now we're experts. I know we annoyed a lot of our listeners by our severe lack of Survivor. knowledge. That is the point of the show. I'm just going to remind you. I have watched some Survivor. I obviously haven't watched enough.

Did people not like it? Like, just because we... Yeah. We'll be recapping the big conclusion in the 50th season from the final attempts at gameplay to the desperate pleas of finalists to a bunch of ha, ooh, ha, ha, ooh, again, we are experts.

So make sure to tune into Pod Meets Twirled for all our Survivor 50 takes. Listen to Pod Meets Twirled on the I heart radio app, Apple Podcasts, or wherever you get your podcasts. Look, and I understand why too. It's very easy to believe that software engineering is just writing code, but the reality is that software engineers maintain software, which includes writing and analyzing code amongst a vast array of different personalities

and programs and problems. Good software engineering harkens back to Brian Merchant's interviews of translators. While some may believe the translator simply tell you what words mean, true translation is communicating the meaning of a sentence, which is cultural, contextual, regional, and personal. and often requires the exercise of creativity and novel thinking. And on top of that, while translation is the production of words, you can't just take code and look at it.

You actually need to know how code works and functions and wide function and it's in that way. Using an LLM, you'll never know, because the LLM doesn't know anything either. Now, my editor Matt Hughes gave an example of this in his newsletter, which I think I'll paraphrase. He used to live in France and the French-speaking part of Switzerland, and sometimes he'll read French translations of books to see how awkward bits of prose are translated. Doing those awkward bits requires a bit of creative thinking, and I quote. Take Harry Potter. In French, Hogwarts is Pudlard, which translates into bacon lice. Why did they go with that instead of a literal translation of Hogwarts, which would be

Verus Spork? I'm sorry to anyone who can actually read languages. No idea, but I'd assume it was something to do with the fact that Poulard sounds a lot better than Verru Spork, and both of them I can say flawlessly. So when I had to actually think about how to translate that one idea, they had to exercise creativity, which is something that an AI is inherently incapable of doing. Similarly, coding is not just a series of text that programs a computer, but a series of interconnected characters that refers to other software in other places that must also function now and explain on some level to someone who has never ever seen the code before

why it was done in this way. This is, by the way, while we're still yet to get any tangible proof that AI is replacing software engineers, because it isn't replacing software engineers. And now we need to understand why this is so existentially bad for genera. of AI. Of all the fields supposedly at risk from AI disruption, coding feels or felt the most tangible, if only because the answer to can you write code with LLMs wasn't an immediate unilateral no. The media has also been quick to suggest that AI writes software, which is true in the same way that Chat GPT writes novels. In reality, LLMs can generate code and do some sort of software

engineering adjacent tasks, but like all large language models, break down and go totally insane, hallucinating more and more as the tasks get more complex, and software engineering is extremely complex. Even software engineers, who can read code and have done so for decades, will find problems they can't solve just by looking at the code. And as I pointed out earlier, software engineer is not just coding. It involves thinking about problems, finding solutions to novel challenges, designing stuff in a way that could be read and maintained by others, and that's ideally scalable and secure. The whole fucking point of an AI is that you hand shit off to it. That's what they've been selling it as. That's why Jensen Huang told kids to stop learning to code.

As with AI, there's no point. And it was all a fucking lie. Generative AI can't do the job of a software engineer, and it fails, while also costing an abominable amount of money. Coding large language models seem like magic at first, because they, to quote a conversation with Carl Brown, make the easy things easier, but they also make the harder things harder. They don't even speed up engineers.

There's a study that showed that make them slower. Yet coding is basically the only obvious use case for LLMs. Oh, I'm sure you're going to say, but I bet the enterprise is doing well, and you're also very, very wrong. Microsoft, if you've ever switched on a TV in the past two years, has gone all in on generative AI, and despite being arguably the biggest software company in the world, at least in terms of desktop operating systems and productivity software, has made almost no traction in popularizing generative AI. It has thousands, if not tens of thousands of salespeople and thousands of companies that literally sell Microsoft services for a living. And it can't sell AI.

I've got a real fucking scoopier. I'm so excited, and I buried it in the third part of a four-pot episode. And truly twisted. But a source that has seen materials related to sales has confirmed that as of August 2025, Microsoft has around 8 million active licensed, so paying users, of Microsoft 365 copilot, amounting to a 1.81% conversion rate across 440 million Microsoft 365 subscribers. must be clear that 365 is their big cash cow. This would amount to if each of these users paid annually at the full rate $30 a month to about $2.88 billion in annual revenue for a product category that makes $33 billion a fucking quarter, this productivity and business unit for Microsoft. And I must be clear, I am 100% sure these users aren't all paying $30 a month. The information reported a few weeks ago that Microsoft is reducing the software's price,

referring to Microsoft 365, with more generous discounts on the end. AI features, according to customers and salespeople, heavily suggesting discounts have already been happening. Enterprise software is traditionally sold at a discount anyway, or put a different way, with bulk pricing for those who sign up a bunch of users at once. In fact, I found evidence that they've been doing this for a while, with a 15% discount on annual Microsoft 365 copilot subscriptions for orders of 10 to 300 seats, mentioned by an IT consultant back in late 2024, and another that's currently running through September 30th, 2025, with another Microsoft Cloud solution provider program. Yeah, this, I found tons of other examples too. And Microsoft 365 is the

enterprise version where they sell things with like Word and PowerPoint and sometimes Teams as well. This is probably their most popular product. And by the way, they even manipulate the numbers a little bit there. An active user is someone who has taken one action on any Microsoft 365 app with copilot in the space of 28 days, not 30, 28. That's so generous. Now I know, I know. That word active. Maybe you're thinking, Ed, this is like the gym model. There are unpaid licenses that Microsoft is getting paid for. Fine, fine, fine, fucking, fucking. Let's assume that Microsoft also has, based on research that suggests this can be the case for some software companies, another 50%, 4 million, paying copilot licenses that aren't being used.

That's still 12 million users, which is around 2.7% conversion rate. That's piss poor, buddy. That's pissy. It sucks. It's bad. Doodoo. I just said Pee, I guess. Anyway, very serious, very serious podcast. But why aren't people paying for copilot? Well, let's hear from someone who talked to the information. And I quote, it's easy for an

employee to say, yes, this will help me, but hard to quantify how. And if they can't quantify how, it'll help them, it's not going to be a long discussion over whether the software is worth paying for. Is that good? Is that good? Is that what, is that what you want to hear? It isn't. It isn't. That's the secret. It's not. It's bad. It's really bad. It's all very bad. and Microsoft 365 copilot has been such a disaster that Microsoft will now integrate Anthropics models to try and make them better. Oh, one other thing too. Sources also confirm GPU utilization, so how much the GPU is set aside for Microsoft 365. Yeah, their enterprise code is barely scratching the 60%.

I'm also hearing the SharePoint, which is an app they have with over 250 million users, has less than 300,000 weekly active users of their co-pilot features. suggesting that people just don't want to fucking use this. Those numbers are from August, by the way. And it's pathetic. And I must be clear, if Microsoft's doing this badly, I don't know how anyone else is doing well. And they're not.

They're all failing. It's pathetic. But I've spent a lot of time today talking about AI coding, because this was supposed to be the saving grace. The thing that actually turned this from a bubble into an actual money-minting industry that changes the world. And I wanted to bring up Microsoft 365 because that's the place where Microsoft should be making the most money.

It's their most ubiquitous software. It's their most well-known software. And they're not. 8 million people. 8 million people. I've run that by a few people. And everyone's made the same, oh, God, noise. It's quite weird.

The oh-god noise and the numbers. But this just isn't happening. Things are going badly, and it really only gets worse from here. And I'm going to tell you more tomorrow in the final part of our four-parter. Thank you for your patience and thank you for your time. Thank you for listening to Better Offline. The editor and composer of the Better Offline theme song is Mattosowski. You can check out more of his music and audio projects at Mattisowski.com.

M-A-T-T-T-O-S-O-S-K-I dot com. You can email me at E-Z at Better Offline.com or visit Better Offline.com to find more podcast links and, of course, my newsletter. I also really recommend you go to chat. Where's your ed.at to visit the Discord and go to R-S-S-Better-O-Line to check out our Reddit. Thank you so much for listening. Better Offline is a production of Cool Zone Media. For more from Cool Zone Media,

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