The Path to Success for AI Startups? Fancy Dancing? Pivots? Twisted Ankles?

October 17, 2023

Note: This essay is the work of a real and still-alive dinobaby. No smart software involved, just a dumb humanoid.

I read “AI-Enabled SaaS vs Moatless AI.” The buzzwordy title hides a somewhat grim prediction for startups in the AI game.” Viggy Balagopalakrishnan (I love that name Viggy) explains that the best shot at success is:

…the only real way to build a strong moat is to build a fuller product. A company that is focused on just AI copywriting for marketing will always stand the risk of being competed away by a larger marketing tool, like a marketing cloud or a creative generation tool from a platform like Google/Meta. A company building an AI layer on top of a CRM or helpdesk tool is very likely to be mimicked by an incumbent SaaS company. The way to solve for this is by building a fuller product.

My interpretation of this comment is that small or focused AI solutions will find competing with big outfits difficult. Some may be acquired. A few may come up with a magic formula for money. But most will fail.

How does that moat work when an AI innovator’s construction is attacked by energy weapons discharged from massive death stars patrolling the commercial landscape? Thanks, MidJourney. Pretty complicated pointy things on the castle with a moat.

Viggy does not touch upon the failure of regulatory entities to slow the growth of companies that some allege are monopolies. One example is the Microsoft game play. Another is the somewhat accommodating investigation of the Google with its closed sessions and odd stance on certain documents.

There are other big outfits as well, and the main idea is that the ecosystem is not set up for most AI plays to survive with huge predators dominating the commercial jungle. That means clever scripts, trade secrets, and agility may not be sufficient to ensure survival.

What’s Ziggy think? Here’s an X-ray of his perception:

Given that the infrastructure and platform layers are getting reasonably commoditized, the most value driven from AI-fueled productivity is going to be captured by products at the application layer. Particularly in the enterprise products space, I do think a large amount of the value is going to be captured by incumbent SaaS companies, but I’m optimistic that new fuller products with an AI-forward feature set and consequently a meaningful moat will emerge.

How do moats work when Amazon-, Google-, Microsoft-, and Oracle-type outfits just add AI to their commercial products the way the owner of a Ford Bronco installs a lift kit and roof lights?

Productivity? If that means getting rid of humans, I agree. If the term means to Ziggy smarter and more informed decision making? I am not sure. Moats don’t work in the 21st century. Land mines, surprise attacks, drones, and missiles seem to be more effective. Can small firms deal with the likes of Googzilla, the Bezos bulldozer, and legions of Softies? Maybe. Ziggy is an optimist. I am a realist with a touch of radical empiricism, a tasty combo indeed.

Stephen E Arnold, October 17, 2023

Written by Stephen E. Arnold · Filed Under AI, Business strategy, News

Comments

Comments are closed.

Search the site
Subscribe to Beyond Search
Feature archive
News archive

Stephen E. Arnold monitors search, content processing, text mining and related topics from his high-tech nerve center in rural Kentucky. He tries to winnow the goose feathers from the giblets. He works with colleagues worldwide to make this Web log useful to those who want to go "beyond search". Contact him at sa [at] arnoldit.com. His Web site with additional information about search is arnoldit.com.