AI: Startup Vs Incumbent Value - A Changing Landscape

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Aug 31, 2023

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AI: Startup Vs Incumbent Value - A Changing Landscape

Introduction:

The distribution of value generated by AI has been intriguingly different for startups and incumbents across various technological waves. While the first internet wave saw a significant portion of the value going to startups, the mobile era largely favored incumbents. However, the emergence of cryptocurrencies witnessed a complete capture of value by startups. In the realm of AI, incumbents have managed to secure a lion's share of the value. This article explores the factors behind this trend and delves into the potential shifts in the landscape that may offer startups a greater opportunity to capture AI-generated value.

The Advantage of Incumbents:

To overcome the dominant position of incumbents, startups must either develop a product that surpasses the incumbent's offering by a significant margin or identify a new customer segment or distribution moat that the incumbent cannot serve. In essence, a 10X better product is required to disrupt the market. The data advantage enjoyed by incumbents may have played a crucial role in their success, but as companies tap into the broader internet as a training set and adopt models that work effectively with smaller data sets, this advantage may diminish.

Challenges Faced by AI Startups:

Many AI startups in the past have faced challenges when taking on incumbents or operating in hard markets such as education or healthcare. Market structure, regulation, and a lack of focus on end-user needs have often stifled technological innovation in these sectors. However, the current wave of AI innovation appears different due to several factors, including the speed of innovation and the overall strength of the technology itself.

The Rise of Infrastructure-Centric Companies:

Unlike previous AI waves, the current landscape features a clear set of infrastructure-centric companies that have gained broad adoption and are witnessing rapid growth. Companies like OpenAI, Stability.AI, Hugging Face, and Weights and Biases are providing accessible technologies, creating opportunities for startups to leverage these tools and build successful businesses.

Identifying the Right Opportunities:

To truly benefit from the current wave of AI, it is essential to identify actual end-user needs and untapped markets. Avoiding the trap of developing solutions in search of a problem is crucial. By focusing on the actual needs of end users and exploring unserved product markets, startups can leverage the power of AI to create valuable and impactful solutions.

Actionable Advice:

  • 1. Leverage AI Tools: Explore tools like summarization, transcription, text-to-voice, and text-to-video to enhance content creation and delivery.
  • 2. Optimize Content Structure: Incorporate features like clickable table of contents, reading time information, and preservation and archiving tools to improve user experience and increase visibility in search results.
  • 3. Prioritize User Needs: Always prioritize the needs of end users and identify markets that can benefit from AI-powered solutions. Understand the pain points and develop products that address these challenges effectively.

Conclusion:

The landscape of AI-generated value is undergoing a transformation, with startups poised to capture a larger share of the pie. The rapid pace of innovation, coupled with the availability of infrastructure-centric companies, provides startups with unprecedented opportunities. By focusing on 10X better products, identifying untapped markets, and prioritizing user needs, startups can unlock the true value of AI and shape the future of the industry. Exciting times lie ahead for AI startups as they finally begin to realize the potential of this transformative technology.

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