A couple weeks ago, I had a discussion with a founder about AI and products in general. This led me to put pen to paper on some thoughts that had been bouncing around my head for some time.
The rest of this article covers what I think the general progression of business + AI will look like.
The point-solution space
In a recent episode of Invest Like the Best, Avi Goldfarb distinguished between three categories of solutions. The first of those is the point solution, which focuses only on providing a new solution at a particular point within a larger context and system—it doesn’t alter anything more than that.
Stage 1: Cambrian explosion
We saw this take place in 2021-22. Thousands of companies appeared out of nowhere, offering “AI for Product X” with taglines of “Use AI to do Thing Y!” Merely appearing to have AI somewhere in your product was an immediate differentiator.
Most of these companies piggy-backed off of existing products, either directly or indirectly. Some were outright competitors of established products, with the previous “core” experience being a cheap knockoff. But by adding AI to it, everyone was suddenly interested.
Stage 2: Mass extinction
We now know (I think most of us suspected) that all of the big players in every tech vertical have been working on AI for years, with many apparently already in possession of product lines that they just hadn’t pulled the trigger on.
Once OpenAI released ChatGPT, timelines changed. And once GPT4 was announced—especially once it became clear how much of a sea change it would mean in performance and capabilities—timelines were erased in favor of announcements and releases NOW.
FAANG-level product announcements killed countless business models instantly. For instance, if Google and Microsoft have their own AI-powered features embedded into their products, why would you pay money for several independent add-ons?
At this stage, good AI (not just something that resembles AI) with targeted features begins its transformation from add-on and default differentiator to “table stakes” in most areas of tech.
The application-solution space
The next step up from point solutions are application solutions. These account for or change the context of the point solution, but they still operate within the paradigms established in the old system.
Stage 3: Equilibrium
A balance is achieved. It becomes popular knowledge that for the most part, the only real competition is between the big players. Yes, there are exceptions, and there are still overlooked areas where smaller players can find their paydays, but those are few and far between—especially when compared to the Cambrian Explosion.
Stage 4: Commoditization
Market pressures lead to simultaneous increases in AI quality, and decreases in AI costs—to the point that there are endless choices, but all are in the same ballpark of value. It’s at this point that you can start to see possibilities of advantages shifting from large mega-corps to small and nimble startups, if you look closely.
The system-solution space
Stage 5: A brave new ecosystem
Competitors start gathering at Schelling points. This fosters synergistic activity at speeds and magnitudes that disrupt everything and everyone that came before.
Smaller players find increasingly innovative ways to leverage more powerful AI tech for narrow use cases with specific knowledge applied. The system of tech itself is transformed, and the quicker you can react to the new reality, the more likely your business will survive. This means a proliferation of new organizations, and perpetual slimming-down of established ones.
Conclusion
Assuming the timeline is correct, how does that make you feel? Energized? Fearful? Indignant? Personally, I feel all of the above and more.
Meta note: I made each of the images in this article using Midjourney.