If you don’t know who Mark Leonard is, go look at long term stock chart of Constellation Software. And then you might say his opinion on how the tech world is evolving with AI in every breath is worth considering.

And a giant, dunno, we shall see how it plays out, seems refreshing to hear while the rest of the world seems to have their hand in your wallet and their BS in your ear.

October Call with Constellation Software

Mark Leonard

Founder, President & Director

Yes, yes. My personal belief is that we all can’t see in the future. Paul, I’m going to post the next tough question to you. Specifically, it’s AI introduces a new COGS element, not historically present in software. Does this change the economics of the business model? I think specifically, what we’re seeing here is the adoption of AI is being massively subsidized by the AI companies, the AI model companies. At some stage, they will want to recapture that investment.

And are they going to be in a position where we have — we face very large switching costs, and they are going to be able to capture a large chunk of our value-added through the — what they charge us for their systems, whether it be on a per token or per whatever basis. So Paul, any speculation?

Unknown Executive

Yes, maybe it’s worth briefly outlining like what we know right now before we look into what might happen in the future. So as of right now, these model providers are charging anything between $1 to $3 for 1 million tokens. You can think of tokens roughly as vault. Now there are many studies that show that AI platform users consume on average per month between 50,000 tokens, which these are the light users and 1 million token users, these are the heavy users.

So based on the data that we have right now, we can infer that if a CSI customers will start to embed AI features into their product, there’s going to be an estimated COGS per user of anything in between like $1 and $8. So I think we can easily cover this and maintain our margins by having premium add-on where our end customers, if they want to leverage these features, they can buy those premium add-ons.

Now indeed, it’s hard to predict how this will pan out in the future. But the good news is that currently, these large language models, they don’t have a very large moat around them. Some of you might have read that when GPT-5 came out, there were some doubts regarding its performance. They had some issues with their deployment. And overnight, there was a huge switch from OpenAI models to different providers with virtually one line of code being changed into the consumer of these LLMs.

So this tells me that there will be high competition between these model providers. And this will keep the pressure on the cost. And I think in the long run, the price per token will go down. Now again, we can speculate about how these companies will start to build up their moat so that it’s harder to switch from one LLM to another.

But so far, again, we don’t have clear data or indicators towards that. I believe that as of right now, if CSI companies are adopting AI figures, we will be able to maintain our margins. And if kind of one of the big providers are starting to hike up their prices, we always have the option to use things like model routing, so using smaller models for different tasks or even on-premise LLM inference by leveraging open-weight LLMs.