AI Revolution: A Founder's Contrarian Discussion about the AI Application Layer
The startup and venture capital ecosystem is currently sailing in unfamiliar waters, with incremental improvements to existing tools and user experiences -it’s absolutely no wonder why we already know why most will shipwreck. Hindsight is 20-20 but from first principles, we can conclude that just over the horizon lies a vast, untapped ocean of opportunity, where the fastest-growing startups will be those that harness the power of AI to revolutionize ->labor<- operational efficiency through a new kind of Saas called "service as a software." The global GDP of service-based industries is roughly 20 trillion and growing due to Jevon’s paradox and so we can conclude that the next collective round of unicorns will be an order of magnitude larger in valuation as services and labor largely become digitized in this next AI platform shift.
In the next 1-2 years, the companies that will navigate this uncharted territory most effectively will be those that fully embrace the potential of AI to streamline and automate manual and even specialized tasks, eliminating the need for large, inefficient, and outdated departments - and NOT be just another application or user-operated tool -” you have to pay for it and learn how to use it, sir”. This new breed of intrepid explorers will chart a course towards minimum 20x improvements in efficiency, leaving behind the outdated maps of the "Web 2.0 tool syndrome" where “users” pay on the order of $20 per month when thinking about it: a valuable unit of specialized full-service could easily go for on the order of $200-$2000 per month per unit seat (or equivalent usage-based pricing) depending on what kind of labor it’s replacing and still see the hypergrowth of usage needed to be venture scale over the next 5 years.
At first, this journey is inevitably be met with skepticism and resistance, as the familiar shores of the current ecosystem beckon with their siren song of incremental progress of “world-class designed apps” or “new way to communicate with the application” and even proud “Google software developer salaries” like a badge of honor. However, the innovators who boldly set sail towards the horizon of AI-driven service as the software will ultimately discover a new world of opportunity, where formerly low-margin (high labor) business categories (with lots of salaries and departments), can become highly profitable (low labor) startup disruptors servicing many of these old categories companies across whole industries, enabling all companies to value from AI.
Consider the short-term rental management market, where property managers currently charge a hefty 20%+ of rental income for their services (thousands of dollars per month). By leveraging AI + deep industry-expertise knowledge databases to automate tasks such as guest communication, dynamic pricing, and cleaning scheduling, a startup like “Kingdom Stays .ai” offers a far more efficient and cost-effective solution, disrupting the industry with a powerful current of change by offering the same if not better quality service for a few hundred dollars a month instead of a few thousand dollars a month.
Venture capitalists who can read the tides from first principles and chart a course toward this new world will find themselves at the helm of a transformative movement. They will be the ones to discover the hidden treasures of AI-driven efficiency, where once-unprofitable industries can become the most valuable trade routes in the startup ecosystem.
In the end, startups and venture capitalists alike can chart a much higher-value generating course towards a new world of disruptive growth, where the power of AI can reshape entire industries and create a sea change in the way we work and live.