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The “hard tech” in AI are the LLMs available for rent from OpenAI, Anthropic, Cohere, and others, or available as open source with Llama, Bloom, Mistral and others. The hard-tech is a level playing field; startups do not have an advantage over incumbents.

There can be differentiation in prompt engineering, problem break-down, use of vector databases, and more. However, this isn’t something where startups have an edge, such as being willing to take more risks or be more creative. At best, it is neutral; certainly not an advantage.

This doesn’t mean it’s impossible for a startup to succeed; surely many will. It means that you need a strategy that creates differentiation and distribution, even more quickly and dramatically than is normally required

Whether you’re training existing models, developing models from scratch, or simply testing theories, high-quality data is crucial. Incumbents have the data because they have the customers. They can immediately leverage customers’ data to train models and tune algorithms, so long as they maintain secrecy and privacy.

Intercom’s AI strategy is built on the foundation of hundreds of millions of customer interactions. This gives them an advantage over a newcomer developing a chatbot from scratch. Similarly, Google has an advantage in AI video because they own the entire YouTube library. GitHub has an advantage with Copilot because they trained their AI on their vast code repository (including changes, with human-written explanations of the changes).

While there will always be individuals preferring the startup environment, the allure of working on AI at an incumbent is equally strong for many, especially pure computer and data scientsts who, more than anything else, want to work on interesting AI projects. They get to work in the code, with a large budget, with all the data, with above-market compensation, and a built-in large customer base that will enjoy the fruits of their labor, all without having to do sales, marketing, tech support, accounting, raising money, or anything else that isn’t the pure joy of writing interesting code. This is heaven for many.

A chatbot is in the chatbot market, and an SEO tool is in the SEO market. Adding AI to those tools is obviously a good idea; indeed companies who fail to add AI will likely become irrelevant in the long run. Thus we see that “AI” is a new tool for developing within existing markets, not itself a new market (except for actual hard-tech AI companies).

AI is in the solution-space, not the problem-space, as we say in product management. The customer problem you’re solving is still the same as ever. The problem a chatbot is solving is the same as ever: Talk to customers 24/7 in any language. AI enables completely new solutions that none of us were imagining a few years ago; that’s what’s so exciting and truly transformative. However, the customer problems remain the same, even though the solutions are different

Companies will pay more for chatbots where the AI is excellent, more support contacts are deferred from reaching a human, more languages are supported, and more kinds of questions can be answered, so existing chatbot customers might pay more, which grows the market. Furthermore, some companies who previously (rightly) saw chatbots as a terrible customer experience, will change their mind with sufficiently good AI, and will enter the chatbot market, which again grows that market.

the right way to analyze this is not to say “the AI market is big and growing” but rather: “Here is how AI will transform this existing market.” And then: “Here’s how we fit into that growth.”

Google is trying to kill the 10 blue links. Twitter is being abandoned to bots and blue ticks. There’s the junkification of Amazon and the enshittification of TikTok. Layoffs are gutting online media. A job posting looking for an “AI editor” expects “output of 200 to 250 articles per week.” ChatGPT is being used to generate whole spam sites. Etsy is flooded with “AI-generated junk.” Chatbots cite one another in a misinformation ouroboros. LinkedIn is using AI to stimulate tired users. Snapchat and Instagram hope bots will talk to you when your friends don’t. Redditors are staging blackouts. Stack Overflow mods are on strike. The Internet Archive is fighting off data scrapers, and “AI is tearing Wikipedia apart.”

it’s people who ultimately create the underlying data — whether that’s journalists picking up the phone and checking facts or Reddit users who have had exactly that battery issue with the new DeWalt cordless ratchet and are happy to tell you how they fixed it. By contrast, the information produced by AI language models and chatbots is often incorrect. The tricky thing is that when it’s wrong, it’s wrong in ways that are difficult to spot.

The resulting write-up is basic and predictable. (You can read it here.) It lists five companies, including Columbia, Salomon, and Merrell, along with bullet points that supposedly outline the pros and cons of their products. “Columbia is a well-known and reputable brand for outdoor gear and footwear,” we’re told. “Their waterproof shoes come in various styles” and “their prices are competitive in the market.” You might look at this and think it’s so trite as to be basically useless (and you’d be right), but the information is also subtly wrong.

It’s fluent but not grounded in real-world experience, and so it takes time and expertise to unpick.