AI in 2023: The Application Layer Has Arrived

AI in 2023: The Application Layer Has Arrived

The year 2023 marks a significant milestone in the evolution of artificial intelligence (AI). The application layer of AI has finally arrived, bringing with it a plethora of use cases that can be grouped into two main buckets: creativity and productivity.

In terms of creativity, AI has made remarkable strides. One notable example is Copilot, a program that generates approximately 40% of the code in projects where it is installed. Experts predict that within the next five years, Copilot's code generation capability will increase to a staggering 80%. This advancement in AI-driven creativity is just the tip of the iceberg, as we are still in the early stages of exploring the full potential of AI applications.

However, as we dive deeper into the world of AI, a pressing question arises: how can companies build competitive moats in this rapidly evolving landscape? True technological differentiation is rare, and businesses must find innovative ways to stay ahead of the competition. One potential strategy is to leverage network effects or create iterative loops of user engagement and product refinement. It is my belief that many of the most successful AI startups will adopt a Software-as-a-Service (SaaS) business model.

When it comes to business models in AI applications, we can draw parallels to the tried-and-true models that have powered the tech industry for the past generation. Marketplaces, although capital-intensive to scale, often possess powerful network effects that create strong moats. Similarly, SaaS will continue to be a desirable business model in the AI space. However, AI SaaS companies will need to deliver best-in-class products to stand out in the crowded enterprise SaaS market.

While the rapid advancement of AI may raise concerns for some, it is important to remember that AI is a tool that amplifies human capabilities. As Wharton professor Ethan Mollick aptly argues, we should not ban large language models but rather find ways to adjust to their presence. The upcoming generation will grow up in a world teeming with AI, and it is crucial for them to learn how to navigate this evolving landscape.

One area where AI excels is visual imagination. In fact, AI models can surpass 99% of humans in this aspect. However, this does not mean that humans will stop imagining. Just as cars are faster than humans, we have not ceased walking. AI serves as an engine for the imagination, amplifying our creative potential in a positive and humanistic way.

On the other hand, AI also enhances productivity. Tools like Jasper.ai, Copy.ai, and Lex empower writers and marketers with superpowers, enabling them to accomplish tasks more efficiently. This amplification of productivity is a testament to the potential of AI in streamlining various industries.

Looking ahead, the future of search engines may lie in generative AI. The current search engine paradigm, developed in the late 1990s, may not be the best way to search in today's digital landscape. The content we consume has drastically changed, with graph-based social networks, data streams, video content platforms, e-commerce, authoritative knowledge sources like Wikipedia, and various apps dominating our digital experiences.

Instead of relying on a traditional database search approach, the future of search could involve utilizing the database as training data for generative AI models. These models, although small in size compared to the training data, can generate highly relevant results based on user queries. This new approach would revolutionize the user experience, eliminating the need to sift through multiple search results and navigate through countless ads and pop-ups.

This shift towards generative AI search would also disrupt the distribution monopoly and advertising business of incumbent search engines. While training AI models can be expensive, the marginal cost of running the models is negligible. This would level the playing field and open up opportunities for new players to enter the search engine market.

In conclusion, the year 2023 marks a significant milestone in the application layer of AI. As AI continues to evolve, it is crucial for businesses to find ways to build competitive moats and stay ahead of the competition. The rise of AI SaaS companies and the potential of generative AI search are just a few examples of the exciting opportunities that lie ahead. To thrive in this AI-driven world, here are three actionable pieces of advice:

• 1. Embrace AI as a tool for amplifying creativity and productivity. AI is not meant to replace human capabilities but rather enhance them.

• 2. Stay ahead of the curve by adopting innovative business models. Explore the potential of network effects, iterative loops, and best-in-class products to create a competitive advantage.

• 3. Keep a close eye on the developments in generative AI search. This paradigm shift could revolutionize the way we access information, creating new opportunities for businesses and leveling the playing field in the search engine market.

As we navigate the ever-evolving landscape of AI, it is crucial to adapt, embrace, and harness the power of this transformative technology. By doing so, we can unlock new possibilities and create a future where AI serves as a powerful engine for human imagination and productivity.