"The Real Winner in AI: The Danger of Early Hype in Consumer Social"

"The Real Winner in AI: The Danger of Early Hype in Consumer Social"

Artificial Intelligence (AI) has become a dominant force in various industries, with companies like Microsoft making significant investments to harness its power. One of Microsoft's ventures is the partnership with OpenAI, a deal that could be worth a staggering $10 billion. Under this agreement, Microsoft would obtain 49% ownership and 75% of profits until it recoups its investment. This move showcases the increasing importance of AI in driving technological advancements.

One of the notable applications of AI is Dalle, which powers Bing Image Creator. This innovative technology has the ability to generate images based on text descriptions, revolutionizing the way we search for visual content online. Additionally, AI integration has expanded beyond image creation, with platforms like Word, PowerPoint, and Outlook utilizing the power of GPT (Generative Pre-trained Transformer) to enhance user experiences.

However, it's crucial to understand the dangers associated with early hype in consumer social startups. Hype, defined as the moment when the perception of a startup's significance surpasses its actual reality, can either make or break a company. While hype can be tempting and alluring, it is advisable for startups to avoid it for as long as possible.

To comprehend the analogy between hype and an economic subsidy, we must explore how subsidies function in a marketplace. Startups often use subsidies to kickstart transactions and attract a larger user base. The higher average value per transaction due to the subsidy makes the value proposition more appealing to a broader audience. However, the risk lies in becoming reliant on the subsidy, as removing it can prove detrimental to the business model.

Hype acts as a subsidy on engagement in consumer social networks. It creates an aura of importance and inevitability, leading consumers to invest their time and engagement in a platform prematurely. Users engage in status-seeking behavior, expecting future rewards for their early adoption. However, once hype begins, it becomes uncontrollable and unpredictable, much like an external force determining the subsidy for each transaction.

Early hype can doom a network because it becomes challenging to gauge user engagement once the hype subsidy diminishes. The cracks in the network's mechanics become apparent when a flood of new users sign up, and the average experience fails to catch up with the hype. This phenomenon, known as hitting the hype air pocket, can result in users losing interest or unsubscribing altogether.

Another risk associated with hype is the catalyzation of incumbent companies to react rather than be caught off guard. When a startup is underestimated by incumbents, it gains more time to develop its product and establish a solid user base. Companies like Pinterest, Robinhood, and Etsy were initially perceived as niche but eventually disrupted their respective industries. Being underestimated provides a competitive advantage, allowing startups to build their flywheel and retain users before the incumbents can react effectively.

Therefore, it is advisable for startups to avoid hype until they achieve product-market fit. Only when a product is ready and the flywheel is spinning smoothly can hype be effectively utilized to attract new users and retain their interest. Economic subsidies, in contrast, should be implemented earlier in a startup's journey to kickstart growth.

To navigate the challenges posed by early hype, here are three actionable pieces of advice:

• 1. Focus on product-market fit: Instead of chasing hype, prioritize developing a product that truly meets the needs and desires of your target audience. Build a solid foundation before seeking external validation.

• 2. Build an engaged network: Rather than aiming for mass adoption from the start, focus on building a highly engaged network within a niche market. This approach allows you to refine your product, gather valuable feedback, and establish a loyal user base before expanding.

• 3. Embrace underestimation: Use the element of surprise to your advantage. Fly under the radar and develop your product in a way that catches incumbents off guard. This strategy provides you with more time to iterate and refine your offering, ensuring a competitive edge when the time is right.

In conclusion, while AI continues to shape the future of technology, it is essential to understand the risks associated with early hype in consumer social startups. By avoiding premature hype, focusing on product-market fit, building an engaged network, and embracing underestimation, startups can increase their chances of long-term success. Remember, it's not about being the first to generate hype, but rather about building a sustainable and impactful business.