Intelligence may be the new cigarettes
Customers spend only a tenth of a percent of their budgets on AI, yet the same buyers increased spending ninefold in a year.
This Week in Startups · Is AI the new cigarettes? Our VC panel digs into Anthropic’s S-1 | E2356The venture investors were picking through Anthropic's filing, with its revenue and customer spending figures, when investor D.A. Wallach reached back a century for a comparison.
“What? Is intelligence the new cigarettes?” he asked.
Wallach argued that the best business in stock market history over the past 100 years was Altria, formerly Philip Morris. He said it combined enormous gross margins with what he called “an incredibly addictive product with virtually unlimited demand.” He added that the figure he had heard at least 10 years ago was still a billion cigarettes sold around the world every day.
AI sellers, in his telling, are now running the same playbook with free samples. He said they have handed out samples to companies everywhere, leaving each one to work out whether it will use AI for the rest of its life and how much it will need each day.
The test, Wallach said, is in Anthropic’s own filing to go public. He said the filing put spending on AI at roughly one tenth of one percent of total operating budgets, though he said he did not know whether that covered top customers or corporate America broadly. Anthropic presents that as headroom, meaning that if spending merely doubled or tripled, the industry would reach trillions of dollars a year.
Wallach said he reads the same number the other way. If the product is so useful, he asked, why are customers not already spending twice as much? His hypothesis was that it is mainly a utility question, meaning companies have not yet figured out how to get enough value from it to buy more.
Fellow investor Ben Black offered the strongest evidence for the cigarette case. He pointed to Anthropic’s 900 percent net revenue retention, which means the same group of customers spent nine times as much this year as last year. Black said he could not imagine another product in history where use multiplied ninefold in a year, not even cigarettes, because they would kill you.
Wallach is still left with his question about daily use. Free samples suggest that everyone wants to try intelligence, but not yet that they cannot live without it.
Questions people ask
What does 900 percent net revenue retention actually mean?
It compares what the same group of customers spent in one period with what they spent in the same period a year later. A figure of 100 percent means spending held steady, and 900 percent means those customers spent nine times as much.
Why would anyone call a cigarette maker the greatest business in history?
Altria, formerly Philip Morris, owned Marlboro and other cigarette brands. Its stock delivered extraordinary long term returns because cigarettes had high margins, repeat buyers, and strong loyalty, although smoking later declined in many countries as health risks and regulation grew.
Do AI companies really hand out free samples?
Many offer free tiers, free trials, or inexpensive starter access so people and companies can experiment. The bet is that once AI is built into daily work, customers will upgrade to paid plans and steadily use more as new tasks prove useful.