11-1: AI Model Selection Economics
Compare foundation model costs (GPT-4, Claude, Gemini, Llama), inference pricing, and quality-cost tradeoffs.
🎯 What You'll Learn
- ✓ Calculate token economics
- ✓ Model quality vs cost ratios
- ✓ Design multi-model routing architectures
Foundation Model Inference Math
Generative AI changes COGS structurally. Unlike SaaS where the marginal cost of a user is zero, every LLM prompt incurs a direct variable hard cost in tokens.
Using a massive $15/1M token frontier model for a task that a $0.20/1M token model could perform is the equivalence of using a semi-truck to deliver a single pizza.
Enterprise AI strategy requires "Model Routing"—analyzing the complexity of an incoming query and routing it to the cheapest model capable of completing it accurately.
The cost to service 10,000 user requests.
The time to first token (TTFT) delay for massive models.
Implement an API router that intercepts your user traffic. Send 80% of "easy" queries (summarization, extraction) to a cheap model (Claude Haiku or Llama 8B) and only escalate complex reasoning to Opus or GPT-4o.
Action Items
Why is Model Routing the most important financial primitive in GenAI development?
Continue Learning: Track 11 — AI Operations & Governance
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Module Syllabus
Lesson 1: Foundation Model Inference Math
Generative AI changes COGS structurally. Unlike SaaS where the marginal cost of a user is zero, every LLM prompt incurs a direct variable hard cost in tokens.Using a massive $15/1M token frontier model for a task that a $0.20/1M token model could perform is the equivalence of using a semi-truck to deliver a single pizza.Enterprise AI strategy requires "Model Routing"—analyzing the complexity of an incoming query and routing it to the cheapest model capable of completing it accurately.