• Revealing the Hidden Economics of Open Models in the AI Era Frank Nagle | 19 November 2025 Artificial intelligence is reshaping economic systems at a pace we have rarely seen in modern technological history. • Every sector-from finance to healthcare to manufacturing-is scrambling to understand how to harness AI safely, efficiently, and competitively. • Yet amid the excitement, a crucial part of the story has been missing. • Specifically, understanding the role that open models play in the AI economy, and how much value is being left on the table when organizations overlook open alternatives, are two topics requiring a closer look. • In our new working paper, “The Latent Role of Open Models in the AI Economy,” Daniel Yue (Georgia Tech) and I probe these questions using one of the most comprehensive datasets assembled to date on AI model usage, prices, and performance. • The findings surprised even us-and they carry major implications for the Linux Foundation community and the global open source ecosystem to the tune of billions of dollars of possible savings on AI expenditure.
Article Summaries:
- A new working paper by Frank Nagle and Daniel Yue examines the economic role of open‑source AI models. Using a large dataset from OpenRouter, the authors find that closed models account for roughly 80 % of usage and 96 % of revenue, yet they cost about six times more than comparable open models. Open models achieve 90 % or more of closed‑model performance on standard benchmarks and are rapidly closing the gap. Despite lower cost and near‑equal performance, organizations still favor closed models due to switching costs, brand trust, information gaps, regulatory concerns, and geopolitical factors. The study suggests that the open‑source ecosystem could unlock billions in AI savings.
Sources: