The compute-heavy nature of AI makes traditional 80%+ SaaS gross margins impossible. Companies should embrace lower margins as proof of user adoption and value delivery. This strategy mirrors the successful on-premise to cloud transition, which ultimately drove massive growth for companies like Microsoft.

Over 20 years, Alnylam raised $7.5 billion. Remarkably, this was evenly split between equity financing from capital markets and non-dilutive funding from pharmaceutical partnerships. This balanced strategy was essential for financing a long, capital-intensive R&D journey while managing shareholder dilution.

Contrary to the focus on large upfront payments, a smarter partnership strategy is to negotiate for a larger share of downstream success through royalties and milestones. This can yield far greater long-term returns if the product succeeds.

Facing industry-wide skepticism in 2010, Alnylam implemented a highly disciplined R&D strategy. They focused exclusively on targets that met strict criteria: liver expression (where delivery worked), human genetic validation (to de-risk biology), and an early biomarker. This strategic focus was key to their survival and success.

In explosive markets like GLP-1 drugs, significant price drops and margin compression (e.g., from 80% to 60%) don't necessarily harm profits. The sheer volume of new customers can completely offset lower per-unit profitability, leading to far greater overall earnings.

High margins create stability but also invite competition. The ideal strategy is to operate with margins low enough to build customer loyalty and a competitive moat, while retaining the *ability* to raise prices when necessary. This balances long-term growth with short-term financial resilience.

AI models are accelerating antibody discovery, creating urgent demand for synthetic DNA. Twist Bioscience meets this need with express "clonal gene" orders, charging a 200% premium at nearly 100% gross margin. This high-margin revenue stream is a key, under-appreciated tailwind for the company's profitability.

Use gross margin as a quick filter for a new business idea. A low margin often indicates a lack of differentiation or true value-add. If a customer won't pay a premium, it suggests they have alternatives and you're competing in a commoditized space, facing inevitable margin compression.

Unlike SaaS, where high gross margins are key, an AI company with very high margins likely isn't seeing significant use of its core AI features. Low margins signal that customers are actively using compute-intensive products, a positive early indicator.