Seems like you put the banker / finance guy cap back on? Good for you! A few thoughts:
I think it’s interesting to focus on the AI lab companies and to an extent I do agree with most of what you’ve said. Faith has substituted economics. But, there’s at least some angle of a classic capitalistic defense. Whereas the companies you mentioned who burned in the past mainly lived off network effects, where at scale they can monetize the attention (FB) or find better unit economics at scale via improved logistics / pricing power (Uber, DD, Amazon). The AI lab companies have more a capitalistic approach. For example - you can’t start a competitor to Pilot pens because you’ll never be able to get the same economics. The labs have a similar barrier to entry but instead of being able to provide a lower price, you actually can’t even have a competitive product without enormous amounts of capital.
So the basic bet is - get reliance and raise prices. But this is really only going to work if you embed yourself within businesses and get people replaced by AI. If this happens, when the labs raise prices it’ll be insanely high-friction to re-staff. I think this point is why there’s so much pressure to replace workers - it lets the labs embed deeply into slow-turning enterprises, getting them more pricing power.
Still tbd whether the economics actually work out, I don’t think it looks great at the moment.
But I think what’s gong on the application layer rn is more insane. It’s possibly lower hanging fruit but from early to growth stage the concept of LTV and even what qualifies as ARR and why seems to have been completely thrown out of the window.
Like the amount of unicorns with dogshit LTV and ARR based on usage is copious. It’s like there’s not really any thought going into “where will they be in 5 years” and instead there’s a focus on grabbing land. But nobody is even actually grabbing land, just getting people to take tours. It’s like paying a realtor full lease commissions for every tour they do. Insane.
Now these companies are also raising small dollar values relative to the labs, but it still makes the entire ecosystem feel a little goofy. Of course, it’s always been goofy though as long as I’ve been around which is prob when I was in college early 2020s.
Speaking of my age, I’m one of the (seemingly) few people who was at the right age to watch internet grift culture up first. From hustle culture to dropshipping to course peddlers, silicon valley is using pretty much the same tactic to push AI. The main tactic is to generate insecurity and fear and then offer a solution. Every pinheaded graph I see, argument about ASI soon and BS stories about companies 10x’ing productivity follow this strategy. Which is obviously sketchy as shit and doesn’t give me faith.
These three points are basically future essay drafts I’ve been sitting on because they feel like low hanging fruit tbh.
Sidebar:
Do we have evidence of proprietary data flywheels working for application layer companies? I see this thesis a lot for verticalized companies but haven’t been able to figure out how it actually works in practice if they’re all just sitting on the same model.
Fantastic read.
And a good John D Rockefeller analogy is always appreciated
I love when you introduce and consider economics...
I've been in too many organizations that are better than rationalization than economics.... keep at it!
Seems like you put the banker / finance guy cap back on? Good for you! A few thoughts:
I think it’s interesting to focus on the AI lab companies and to an extent I do agree with most of what you’ve said. Faith has substituted economics. But, there’s at least some angle of a classic capitalistic defense. Whereas the companies you mentioned who burned in the past mainly lived off network effects, where at scale they can monetize the attention (FB) or find better unit economics at scale via improved logistics / pricing power (Uber, DD, Amazon). The AI lab companies have more a capitalistic approach. For example - you can’t start a competitor to Pilot pens because you’ll never be able to get the same economics. The labs have a similar barrier to entry but instead of being able to provide a lower price, you actually can’t even have a competitive product without enormous amounts of capital.
So the basic bet is - get reliance and raise prices. But this is really only going to work if you embed yourself within businesses and get people replaced by AI. If this happens, when the labs raise prices it’ll be insanely high-friction to re-staff. I think this point is why there’s so much pressure to replace workers - it lets the labs embed deeply into slow-turning enterprises, getting them more pricing power.
Still tbd whether the economics actually work out, I don’t think it looks great at the moment.
But I think what’s gong on the application layer rn is more insane. It’s possibly lower hanging fruit but from early to growth stage the concept of LTV and even what qualifies as ARR and why seems to have been completely thrown out of the window.
Like the amount of unicorns with dogshit LTV and ARR based on usage is copious. It’s like there’s not really any thought going into “where will they be in 5 years” and instead there’s a focus on grabbing land. But nobody is even actually grabbing land, just getting people to take tours. It’s like paying a realtor full lease commissions for every tour they do. Insane.
Now these companies are also raising small dollar values relative to the labs, but it still makes the entire ecosystem feel a little goofy. Of course, it’s always been goofy though as long as I’ve been around which is prob when I was in college early 2020s.
Speaking of my age, I’m one of the (seemingly) few people who was at the right age to watch internet grift culture up first. From hustle culture to dropshipping to course peddlers, silicon valley is using pretty much the same tactic to push AI. The main tactic is to generate insecurity and fear and then offer a solution. Every pinheaded graph I see, argument about ASI soon and BS stories about companies 10x’ing productivity follow this strategy. Which is obviously sketchy as shit and doesn’t give me faith.
These three points are basically future essay drafts I’ve been sitting on because they feel like low hanging fruit tbh.
Sidebar:
Do we have evidence of proprietary data flywheels working for application layer companies? I see this thesis a lot for verticalized companies but haven’t been able to figure out how it actually works in practice if they’re all just sitting on the same model.