(Bloomberg) — The $15.6 billion legal startup Harvey built its business around training AI models like OpenAI’s GPT-4 to do specialized work for lawyers. Recently, however, soaring artificial intelligence costs have nudged it to rethink its dependence on the AI giants.
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After a March update to its AI agents, Harvey’s customer usage spiked, but its gross margins dropped sharply — from about 50% at the beginning of the year to -50% by June, according to a person familiar with the matter.Now, the startup has joined a growing group of software companies that are embracing open-weight AI, including increasingly capable alternatives from China. These offerings are typically cheaper than proprietary technology from US AI developers and let firms like Harvey create custom models with their own data.
Investors like Sequoia Capital and General Catalyst are backing the trend, which is giving firms a way to save on one of their biggest costs, while granting them more control over their technology — instead of outsourcing it to OpenAI and Anthropic. This push risks cutting into the AI giants’ revenue as both gear up for highly anticipated initial public offerings in the near future. And as debate swirls over the need to pace cutting-edge AI, for some startups, it’s also becoming a hedge against a future in which the most advanced models could be slowed or restricted.
Harvey released a model of its own in August, powered by China-based Moonshot AI’s Kimi K3, which can perform close to Anthropic’s best offerings at a fraction of the cost. That launch, plus other tweaks to its AI usage, have made Harvey’s gross margins positive again, according to people familiar with the efforts. The company declined to comment on specific <a href="https://bitcomme.com/is-first-financial-bankshares-ffin-a-bargain-following-its-recent-pullback/” title=”Is First Financial Bankshares (FFIN) A Bargain Following Its Recent Pullback?”>financials for this story.
Similarly, healthtech startup Abridge recently announced it was building a custom foundation model for clinical settings, trained on Nvidia’s open models. AI customer support startup Decagon said it now flows 80% of queries through its own models. In fintech, startups including Ramp and Rogo are exploring training their own models for the first time. Coding companies including Cursor, now part of SpaceX, and $48 billion Cognition were some of the first AI applications to release bespoke models.
