Small models are eating the easy work
The frontier gets the headlines, but the economically interesting movement is at the bottom of the size chart, where distilled models keep absorbing tasks that used to need a giant.
Every release cycle, attention flows to the largest model on the slide. But the trend with the broadest economic consequences is happening at the other end of the chart: models a fraction of frontier size keep matching what last year's giants could do, and they keep getting cheaper to run.
The mechanics are well understood. Distillation transfers capability from large teacher models to small students. Better data curation gets more capability per parameter. Quantization shrinks deployed models with minimal quality loss. Stack those techniques and the capability-per-dollar curve moves fast — faster, for many everyday tasks, than the frontier itself is moving.
The routing economy
The practical consequence is that model choice became a portfolio decision. Production systems increasingly route by difficulty: classification, extraction, formatting, and routine drafting go to a small, fast, cheap model; genuinely hard reasoning escalates to a large one. When the majority of a workload's volume is routine, most tokens end up flowing through the small tier — and the aggregate bill looks nothing like frontier pricing.
On-device deployment pushes the same logic further. A model that runs on a phone or a laptop pays no per-token price at all, works offline, and keeps data local. For a growing band of tasks, the question has flipped from can a small model handle this to why would we pay cloud rates for something this routine.
What the frontier is for
None of this makes scale irrelevant. The hardest problems — long-horizon reasoning, novel research assistance, complex agentic work — still separate the largest models from everything below them, and frontier training is where new capabilities are discovered before they're distilled downward. The frontier is the R&D lab; small models are the factory floor.
But the division of labor is now permanent, and it reshapes the business. Every task that migrates down the size chart takes its margin with it. The interesting competition is no longer only who has the smartest model — it's who runs the smartest portfolio.
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