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Most AI Startups: Facing a Daunting Future

November 30, 2023

The AI Startup Landscape: A Reality Check

In the realm of Artificial Intelligence (AI), the current atmosphere can be likened to a gold rush, where everyone is eager to stake a claim. However, not all that glitters is gold. The harsh truth is that the vast majority of AI startups, especially those that emerged in the wake of ChatGPT's popularity, are on a precarious path. These startups, often just amalgamations of generative AI APIs with a polished front-end, lack a sustainable competitive edge. Basic economics dictate that without defensibility and differentiation, profitability remains a distant dream.

The Mirage of Defensibility in AI

When it comes to defensibility, even behemoths like Alphabet, Meta, and OpenAI aren’t exempt. The current AI models, including well-known ones like ChatGPT, Bard, and LlaMA, are primarily built on open-source technologies and architectures, such as transformers and Large Language Models (LLMs). This openness means that any large tech company can replicate these models, leaving little room for a defensible moat. The replication is not just a theoretical possibility but a reality acknowledged even within Alphabet.

The Evolving AI Industry: Adapt or Perish

Despite these challenges, the AI sector is not devoid of opportunities. The key lies in finding niches where proprietary data, particularly data that isn’t readily available on the internet, plays a crucial role. Fields like healthcare, where data is siloed in hospitals, or areas requiring physical world experiments, are prime examples. Here, AI startups have the chance to create value by owning unique, hard-to-replicate datasets.

The Broader Perspective: AI in 2023

Beyond startups, AI in 2023 is grappling with its own set of challenges. Experts at Northeastern University highlight the tension between AI's potential to augment human capabilities and fears of it replacing human jobs. The key to navigating this landscape is education about AI's true potential and limitations. AI's impact is already evident in sectors like higher education and creative fields, prompting the development of countermeasures and adaptations to these new technological advancements.

Investment Trends in AI for 2023

In terms of investment, AI continues to attract significant attention. Over the past decade, AI funding accounted for about 10% of global VC dollars, a trend expected to persist. The sectors attracting these investments include enterprises using AI for scalable problem-solving, AI tools development, medicine and therapeutics, content creation, Web3 and data science, and cybersecurity.

The takeaway is clear: AI is revolutionizing the world, but for AI startups, the road is fraught with challenges. Their survival depends not just on leveraging AI but on navigating a complex ecosystem where innovation, unique data, and understanding of AI's limitations are key to success.

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