Marginal costs are back in a big way for AI, both in the short-term implications of state-of-the-art free/cheap models and in the long-term structure of the industry.

Thompson frames the debate over Kimi K3 as evidence that old cost-structure principles (once thought irrelevant to zero-marginal-cost software) are returning to the center of AI industry dynamics. ✦ AI generated

Ben Thompson · Stratechery · 2026-07-20 · original ↗

That was never more apparent than this past weekend, when arguments raged on X about the implications of Kimi K3, another open weights model out of China, approaching the state-of-the-art in terms of capabilities. The long and short of it is this: marginal costs are back in a big way, both in terms of short-term implications of state-of-the-art free models, and in terms of the long-term structure of the industry.

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