The Shifting Landscape of Business Models and the Decreasing Costs of AI: A Comprehensive Analysis

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Aug 18, 2023

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The Shifting Landscape of Business Models and the Decreasing Costs of AI: A Comprehensive Analysis

Introduction:

In today's rapidly evolving business landscape, companies are constantly exploring different business models to adapt to changing market dynamics and customer demands. One prevalent model is the marketplace, wherein businesses sell incremental demand to customers as their primary value proposition. However, as companies grow larger, they often sequence to new or additional models over time. This article explores the various types of marketplaces and delves into the reasons behind companies' decisions to shift their business models. Additionally, it examines the decreasing costs of AI and its implications for businesses.

Sequencing Business Models: The Types of Marketplaces:

When a business starts out with a SaaS-like approach, its primary focus is on solving problems that are more important to customers than demand generation. Typically, these businesses initially tackle payment-related challenges. As we move further along the business model spectrum, the sophistication of value propositions offered to suppliers increases. A light marketplace, for instance, primarily offers leads or connections, leaving it up to the supplier to close the transaction. Moving towards the right, leads are replaced by liquidity as a value proposition. Achieving liquidity requires a stronger focus on matching and ensuring that the marketplace attracts demand. On the demand side, the value proposition landscape is relatively simpler. SaaS companies, for example, have no relationship with demand and do not offer them any value proposition. Conversely, for SaaS-like networks, the emphasis is on making transactions with suppliers as efficient as possible. However, decisions regarding payment handling become more complex based on the company's future sequencing plans.

The Role of Payments and Trust in Marketplaces:

Payments play a crucial role in marketplace business models, as they enable companies to enforce policies that build trust among participants. For companies aspiring to be SaaS or light marketplaces, investing in their own first-party payment products may not be necessary. However, if a company is transitioning towards becoming a managed marketplace, retaining payment infrastructure becomes essential to offer light marketplace value propositions and rebuild them later when shifting to a managed model. Furthermore, payments enhance the overall trustworthiness of the marketplace by providing a sense of security to consumers. In SaaS companies, where the consumer is not considered the customer, confusion may arise when consumers expect consistent support from the company regardless of the supplier chosen.

The Decreasing Costs of AI and its Impact:

Databricks' acquisition of Mosaic highlights the rapidly decreasing costs of AI and its transformative potential for businesses. Mosaic's vision to make training and fine-tuning models cost-effective aligns perfectly with Databricks' objective of helping companies adopt machine learning rapidly. Training costs have seen a significant reduction in recent times, with costs decreasing by 10 times within a year. For example, stable diffusion training costs have diminished from $600k to $50k. This trend is driven by algorithmic improvements from companies like MosaicML and the decreasing prices of GPUs, which have gone down three times in the span of three years. The decreasing costs of AI have implications for the model layer, leading to more providers and increased competition. This places pricing pressure on closed-source model providers, potentially driving more companies towards open-source alternatives.

Actionable Advice:

  • 1. Embrace the Evolution of Business Models: As a business, recognize that there is no one dominant business model. Be open to sequencing to new or additional models over time as your company grows. Continuously assess market dynamics and customer demands to adapt your value propositions accordingly.
  • 2. Leverage the Decreasing Costs of AI: Stay updated on the decreasing costs of AI and the advancements in algorithmic improvements. Explore opportunities to incorporate AI into your business processes, whether it be for training models, enhancing efficiency, or improving customer experiences.
  • 3. Prioritize Trust and Payment Infrastructure: If you operate a marketplace, prioritize building trust among participants through robust payment infrastructure. Evaluate the need for in-house payment products based on your future sequencing plans. Payments not only facilitate transactions but also contribute to creating a secure and trustworthy environment for consumers.

Conclusion:

In conclusion, the evolving landscape of business models and the decreasing costs of AI present both challenges and opportunities for companies. Sequencing business models allows companies to adapt to changing market dynamics, while the decreasing costs of AI enhance the accessibility and competitiveness of AI-driven solutions. By embracing these changes and making informed decisions, businesses can position themselves for success in the dynamic and technology-driven marketplace of the future.

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