The performance gap between open-source and proprietary frontier models has collapsed.
DeepSeek V3 offers performance comparable to GPT-4o at 27 cents per million input tokens, compared to roughly 2.50 dollars for GPT-5. DeepSeek’s reasoning model costs 55 cents per million input tokens - 96 percent cheaper than equivalent OpenAI reasoning models.
Open-source models now cover approximately 80 percent of real-world enterprise use cases at 86 percent lower cost than proprietary alternatives.
The practical spending threshold is 15K pounds per month in API costs. Below that, the engineering overhead of self-hosting open-source models is not worth it.
Above it, the economics justify a proper evaluation.
Above 100 million tokens per month with adequate engineering capacity, open-source self-hosting is almost always significantly cheaper.
Proprietary models give you access to frontier capability with zero deployment overhead.
The trade-offs are vendor lock-in, no control over model behaviour or training data, and complete dependency on a vendor who can change pricing or deprecate model versions on their timeline. Open-source models give you full control, fine-tuning capability on proprietary data, and deployment flexibility including air-gapped environments.
The trade-off is that you own the operational complexity.
Fine-tuning pays back when you exceed roughly ten thousand requests per day - below that, prompt engineering with a frontier model is more economical. Modern prompt optimisation techniques have been shown to outperform reinforcement learning fine-tuning by 6 to 19% points on benchmark tasks while using up to 35 times fewer compute resources.
Fine-tuning wins for very high volume token cost reduction and for hard-to-prompt output formats.
The model choice and the infrastructure choice are the same decision viewed from two angles.
Get clear on your volume, your compliance requirements, and your engineering capacity, and
the right choice usually becomes obvious.
This is 5th episode in the series of Build vs Buy vs Rent: The AI Infrastructure Decision Tree for Startups Listen to the full episode here, in Substack app, or Apple, Spotify / youtube.
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