Calculating true AI total cost of ownership
Add initial development, then annual maintenance at roughly 15–30% of build cost, plus talent and infrastructure rising 30–50% per year, over a realistic 3–5 year horizon. Compare that total against a vendor subscription for the same period.
The multi-year TCO model
A one-year comparison flatters building. Model 3–5 years including maintenance and rising talent costs, and the buy option usually wins decisively for context capabilities.
The mistake is comparing a build’s year-one cost to a vendor’s year-one subscription. Extend the horizon: over three to five years the build accrues maintenance at 15–30% annually and its talent bill climbs 30–50% per year, while the vendor spreads its costs across thousands of customers and improves the product for free. Only when a capability is core and data-differentiated does the build’s strategic value justify carrying that curve alone.
Frequently asked questions.
What time horizon should I use?
Use three to five years, matching how long the capability will realistically be in service. Shorter horizons understate maintenance and talent costs that compound over time; longer horizons are hard to forecast given how fast the tooling changes.