Tuesday, January 10th, 2023
There’s a pattern with disruptive technologies where a new foundational capability emerges (e.g. the web, smartphone) and it sparks a wave of startups and investment,
followed by a significant market correction. Startups explore new experiences and capabilities enabled by technology while investors compete for their attention with sky
high valuations in a rush to avoid missing out. Reality eventually sets in, and the businesses that formed around a novel experience but lacked a viable business model are
forced to consolidate or fold. Technology that was initially a catalyst for disruption becomes commoditized and broadly incorporated into many products. The winners are few
but the spoils are tremendous.
AI is a major technology shift and we’re moving faster than ever through this disruption cycle. Open source is driving innovation with incredible velocity and it’s interesting
to see how quickly the large incumbents (e.g. Google, Adobe, Microsoft, Autodesk, Meta, Native Instruments, etc.) have sharpened their focus around AI. Their product development
cycles are typically 8-12 months or longer, but we’re already seeing the fruits of their labor as they incorporate AI into every facet of their robust and familiar products that
collectively serve billions of DAU. These companies will dominate their markets because adding AI to an established product is often a lot easier and stickier than establishing a
new product around an AI. Unlike previous industry transformations, the core innovative technology is open sourced and commercially distributable, so it’s likely cheaper for an
incumbent to build versus buy.
The startups that survive this phase will be the ones that focus on building products instead of features, and out-execute their competition. They must embrace open source models, target an untapped market, build a novel and compelling
product with a clear use case and path to profitability, and most importantly: capture users faster than ever before. Their customers are their moat, not their technology.
