# Model Distillation Undercuts Major AI Firms' Profitability > Source: > Published: 2026-07-08 09:37:13+00:00 Business Insider reported July 8, 2026, that **model distillation** is eroding the profit logic for frontier AI labs by letting smaller models learn from outputs generated by systems from **OpenAI**, **Anthropic**, Google, and others. Bloomberg previously reported that major labs were sharing indicators through the Frontier Model Forum to detect adversarial distillation, while CNBC reported Alibaba restricted internal use of `Claude Code` after related accusations. For practitioners, the operational lesson is to evaluate distilled models independently: they may be cheaper and capable, but they can inherit hidden weaknesses, unclear training provenance, and weaker safety guarantees.