AI: Startup Vs Incumbent Value - The Shift Towards Curation

AI: Startup Vs Incumbent Value - The Shift Towards Curation

In the world of technology and innovation, there has always been a battle between startups and incumbents for capturing the value created by groundbreaking ideas. However, when it comes to AI, the story seems to be different. The prior wave of value from AI mostly went to incumbents, despite the significant startup activity in the field. This is in contrast to the first internet wave, where most of the value went to startups like Google, Amazon, and Facebook, with only some captured by incumbents such as Microsoft and Apple.

The pattern continued with the mobile revolution, where incumbents like Apple and Google dominated the market, but startups like Whatsapp, Uber, and Instagram still managed to carve out a significant share of the value. However, when it comes to crypto, it has been almost entirely a startup game, with little participation from existing financial services or infrastructure companies.

To beat an incumbent as a startup in the AI space, you need to either build something dramatically better or focus on a brand new customer segment or distribution moat that the incumbent cannot serve. In general, a 10X better product is required to overcome the distribution, capital, and pre-existing product moats of established players. However, the advantage that incumbents had in terms of data is now diminishing as companies use the broader internet as an initial training set and switch to models that work more robustly with smaller data sets.

Many prior-wave AI companies took on incumbents directly or operated in hard markets like education or healthcare. These markets often crush technological innovation due to market structure, regulation, or a lack of understanding of end-user needs. However, the current wave of AI feels different. The speed of innovation across various areas is remarkable, making it easier to create 10X better products. This could be attributed to a technology sea change.

While GPT-3, a breakthrough AI model, has not yet resulted in a large number of startups building big businesses on it, a 5-10X better model could create a whole new startup ecosystem while also augmenting incumbent products. Additionally, there are now infrastructure-centric companies with broad adoption and rapidly growing usage, providing startups with more opportunities to access AI technologies and build innovative solutions.

One area where AI can have a significant impact is in highly repetitive, highly paid tasks such as coding, marketing copywriting, and generating images for websites. Workflow tools that leverage AI features can become core parts of broader workflows, creating value for both startups and incumbents. The ability to summarize or generate text and images in a high-fidelity manner opens up new possibilities for product applications.

However, it is crucial not to fall into the trap of being a hammer-looking-for-a-nail. It is essential to identify actual end user needs and unserved product markets that can benefit from the power of AI. Focusing on the needs of the end user is key to creating successful AI-driven solutions.

In a different realm, the role of curation has also been gaining prominence. The role of a curator is to sort through culture and show us what we need to know and why. Curation has expanded beyond just being a caretaker of objects in a museum. It has become about curiosity and democratizing art, bringing it to different sections of society and building exhibitions into society.

In the world of brands, curation has become a preferred strategy for differentiation, relevance, equity building, and longevity. The aesthetic world and the narrative that curation creates are harder to replicate than a brand's visual handwriting and tone of voice. By curating old things and connecting them with new things, brands give them renewed meaning and purpose in consumers' eyes. Curation contextualizes products within a specific time and point of view, turning them into collectibles.

Moreover, curators bridge the gap between different taste communities, introducing them to one another. They connect people, products, and ideas in a way that creates something simultaneously new and familiar. In the pressure for newness, brands often struggle to create truly new things, but by curating the old, they can create value and meaning.

In conclusion, the landscape of AI and curation is evolving rapidly. Startups are beginning to get real value from AI, thanks to advancements in technology and a more favorable environment for innovation. However, it is crucial for startups to focus on building 10X better products and identifying unserved markets to overcome the advantages of incumbents. At the same time, brands are embracing curation as a strategy to differentiate themselves and create cultural relevance. By curating old and new elements, brands can create value and meaning in a crowded market. The future holds exciting opportunities for both AI startups and curators alike.

Actionable Advice:

1. Focus on building a product that is 10X better than what incumbents offer. This requires a deep understanding of end user needs and the ability to overcome distribution and capital barriers.
2. Identify unserved markets or customer segments that incumbents cannot effectively serve. By focusing on these untapped areas, startups can carve out their own niche and capture value.
3. Embrace curation as a strategy for differentiation and relevance. By curating old and new elements, brands can create a unique aesthetic and narrative that sets them apart from competitors.