The Diderot Effect: Exploring the Tendency to Overconsume

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Hatched by Glasp

Sep 20, 2023

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The Diderot Effect: Exploring the Tendency to Overconsume

In our modern consumer-driven society, it's no secret that we often find ourselves buying things we don't actually need. Whether it's upgrading to the latest version of a product or filling our lives with unnecessary possessions, the allure of new and improved items is hard to resist. This phenomenon is known as the Diderot Effect, named after French philosopher Denis Diderot, who experienced firsthand the consequences of overconsumption.

Diderot's story serves as a cautionary tale for our own lives. In a short amount of time, he went from owning a simple robe to accumulating a new golden clock, a bronze sculpture, a console table, and even more art pieces. As he put it, "I was the absolute master of my old robe. I have become the slave of the new one." This natural tendency to always consume more, better, and newer is what drives us to constantly seek out the next shiny toy.

However, it is possible to break free from this cycle of impulse buying and embrace mindful consumption. One way to combat the shiny toy syndrome is to recognize that buying a new item often only brings temporary satisfaction. Instead, we can strive to find lasting contentment in the possessions we already have, appreciating their value and not constantly seeking something new.

Another actionable step towards mindful consumption is setting spending limits. By establishing a strict budget, we can avoid falling into the trap of overconsumption. It forces us to evaluate our purchases more carefully, distinguishing between what we truly need and what will simply drain our wallets.

Furthermore, it's important to be aware of the triggers that lead us to consume excessively. Whether it's advertisements, social media influencers, or the pressure to keep up with the latest trends, these external forces can influence our buying decisions. By recognizing and avoiding these triggers, we can regain control over our consumption habits and make more thoughtful choices.

The Diderot Effect is not limited to personal consumption; it also applies to the world of generative AI. This rapidly growing field has seen the emergence of various product categories, such as image generation, copywriting, and code writing, that have already exceeded $100 million in annualized revenue. However, the question of who owns the generative AI platform and how to build a sustainable business in this space remains open.

Infrastructure vendors have emerged as the biggest winners in the generative AI market so far. They capture the majority of the revenue flowing through the stack, while application companies struggle with retention, product differentiation, and gross margins. Meanwhile, most model providers, despite being responsible for the existence of this market, have yet to achieve large-scale commercial success.

One key factor in the success of generative AI businesses is the hosting and commercialization of models. Demand for proprietary APIs is growing rapidly, while hosting services for open-source models are providing a hub for sharing and integrating models. The potential of generative AI is immense, but it also carries potential harm, leading many model providers to incorporate the public good into their mission.

When it comes to the financial aspect of generative AI, a significant portion of the revenue flows to infrastructure companies. For example, Nvidia reported substantial data center GPU revenue from generative AI use cases. This highlights the importance of infrastructure as a lucrative and durable layer in the stack, with various moats such as scale, supply-chain, ecosystem, algorithmic, distribution, and data pipeline moats.

However, it remains uncertain if there will be a long-term winner-take-all dynamic in generative AI. Both horizontal and vertical companies have the potential to succeed, depending on the end-markets and end-users. Verticalization, where the user-facing app is tightly coupled with the home-grown model, may be advantageous when the AI itself is the primary differentiation. On the other hand, horizontalization may be more suitable when the AI is part of a larger feature set.

In conclusion, the Diderot Effect reminds us of our natural tendency to overconsume and constantly seek out new possessions or products. However, by practicing mindful consumption and being aware of our triggers, we can break free from the cycle of impulse buying. In the world of generative AI, the path to building a sustainable business is still being explored, with infrastructure vendors currently dominating the market. To navigate this evolving landscape, it's crucial for businesses to adapt to changing dynamics, prioritize differentiation, and seize opportunities for growth.

Actionable Advice:

  • 1. Embrace mindful consumption by appreciating the value of the possessions you already have and resisting the urge to constantly seek something new.
  • 2. Set strict spending limits to avoid falling into the trap of overconsumption. Evaluate your purchases carefully and prioritize what you truly need.
  • 3. Recognize and avoid the triggers that lead you to consume excessively. Whether it's advertisements or social media influencers, regain control over your consumption habits by being mindful of external influences.

By implementing these actionable steps, we can cultivate a more conscious and sustainable approach to consumption, both in our personal lives and in the realm of generative AI.

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