1 link tagged with all of: ai economics + inference + token costs + saas margins
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AI inference spending will overtake databases as the largest software market by 2027, fundamentally breaking the economics that made traditional SaaS profitable. This shift forces application companies to manage massive infrastructure costs that will compress margins and demand new operational approaches.
- Inference market grows from $25b (2025) to $350b (2027), passing databases at roughly 2x the size, making it the dominant software category.
- Gross margins collapse below SaaS norms (72%) because inference costs become a major COGS line item, forcing vendors to either build proprietary models to reduce token overhead or accept margin compression.
- Customer-owned infrastructure (BYOK) trades top-line revenue for gross margin—vendors get higher percentage margins but on drastically smaller contracts.
- Token price wars won't solve the problem; capability improvements keep resetting frontier model prices upward, so companies must optimize through smaller models, better routing, and efficient harnesses.