[HN Gopher] Most AI startups are doomed
___________________________________________________________________
Most AI startups are doomed
Author : j-wang
Score : 137 points
Date : 2023-11-28 19:28 UTC (3 hours ago)
(HTM) web link (weightythoughts.com)
(TXT) w3m dump (weightythoughts.com)
| JumpCrisscross wrote:
| Most start-ups are doomed. If you can build it in a weekend, they
| can too. But they didn't. And you have a weekend's head start.
| simbolit wrote:
| That's the first section of the article. It then continues for
| four more sections.
| JumpCrisscross wrote:
| Author concludes the only moats for an AI start-up are
| captured compute and proprietary data. I'm disagreeing.
|
| Good execution remains differentiated. It just requires
| continuous iteration, evolution and improvement.
|
| If you build an MVP over a weekend and then pivot 100% of
| your efforts to fundraising and marketing, as has been the
| trend over the past decade, yes, you're screwed. You're
| building dollar apps for another App Store.
|
| Most of the arguments the author levels would have worked
| against the first waves of computerization, digitisation and
| the emergence of the Internet, in some cases more powerfully.
| Yet the prediction didn't hold. Capex and IP weren't sole, or
| even strong, predictors of new-entrant success. For Exhibit A
| to the first part, see Softbank.
| Swizec wrote:
| > Good execution remains differentiated.
|
| Levels is a good example of this.
|
| While we're sitting here waxing poetic about moat or no
| moat and what to do with these AI things, he's made some 7
| figures in cold hard cash revenue from building and
| shipping things people want.
|
| https://twitter.com/levelsio/status/1669269424543793153
| lumost wrote:
| 7 figures is pretty great for an individual, assuming
| that there is at least a 50% margin. For a company it's a
| good start in SF. Scaling a business with no moat will
| quickly bump into margin compression and a race to the
| bottom.
|
| Not a problem if you are an individual with no intent to
| scale, but a big problem if you are investor looking to
| invest 8 figures.
| Swizec wrote:
| Distribution _is_ a defendable moat however. Even for
| investors.
|
| Once you have a few thousand users giving you cold hard
| cash to use your service, you also have access to way
| _way_ better product development and marketing
| information. Not to mention a lot of data you can use to
| fine-tune your AI in ways that a competitor starting from
| scratch couldn't dream to replicate.
|
| This is a big part of why you see all these BigTech
| companies adding AI features. Their existing user-base is
| the moat.
| simbolit wrote:
| > Good execution remains differentiated. It just requires
| continuous iteration, evolution and improvement.
|
| But with the underlying basis for everything being open
| source, everything you learned with "continuous iteration,
| evolution and improvement" can be copied relatively easily.
| JumpCrisscross wrote:
| > _with the underlying basis for everything being open
| source_
|
| The models may be open (or available to anyone who can
| pay). But so was TCP/IP and the App Store.
|
| Nobody is going to win on the tech alone because nobody
| has _ever_ won on the tech alone. If your founding team
| has the relationships to get you ensconced at a beachhead
| of customers, and your technical team can move fast
| enough that inertia keeps them put, you have a solid shot
| at denying that space to other entrants.
| brigadier132 wrote:
| I read the other 4 sections and they were true pre chatgpt
| too. It all still applies. There are so many companies out
| there that I look at and think "how does this business still
| exist? How has this not been copied? Why hasn't big tech just
| killed this thing with a clone?"
|
| I think people who know how to code and code for their day
| job really underestimate how hard it is to build these
| things. Even the weekend projects. A ton of these "weekend"
| projects, took a weekend to build, plus years of learning and
| research into the best most efficient ways of building those
| kinds of apps.
|
| Building a startup is completely different from your faang /
| unicorn software engineer dayjob. Where everything is
| perfectly and comfortable setup for you. There is a team
| dedicated to making sure your code is deployed every day. The
| test harnesses are already built. You have dedicated
| designers telling you exactly how everything should look.
| It's all easy.
|
| This is like the twitter clone effect. It's a cliche at this
| point, the casual "I could build twitter in a weekend". Why
| aren't there a million reddit clones? Why aren't there a
| million instagram clones? Why aren't there a million notion /
| canva / figma clones?
|
| If it were that easy to replicate these things they would be
| out there.
| lossolo wrote:
| There's a difference between social networks, where a
| network effect is needed, and why we don't see clones of
| platforms like Instagram or Reddit. Many of today's 'AI
| startups' are essentially just a landing page with a few
| hundred lines of code generated by GPT-4 to connect with
| the OpenAI API. The key element in these startups is their
| unique prompt used with the API. Essentially, cloning this
| type of startup boils down to replicating this prompt.
| brigadier132 wrote:
| > There's a difference between social networks, where a
| network effect is needed
|
| Ok, but why aren't there a thousand "made in a weekend"
| clones that at the very least function but have no users?
|
| > Many of today's 'AI startups' are essentially just a
| landing page with a few hundred lines of code generated
| by GPT-4 to connect with the OpenAI API
|
| This is a strawman. Most of the AI startups that have
| raised significant money are not that.
| lossolo wrote:
| > Ok, but why aren't there a thousand "made in a weekend"
| clones that at the very least function but have no users?
|
| Because you are using social network to connect/interact
| with other people? If I'm making a simple AI tool powered
| by LLM then I don't need other users to make it useful
| for you.
|
| > This is a strawman. Most of the AI startups that have
| raised significant money are not that.
|
| It's not a straw man argument if adding a condition to
| your statement is necessary to refute it. In fact, having
| to do so is essentially the definition of a straw man.
| Zak wrote:
| > _Ok, but why aren 't there a thousand "made in a
| weekend" clones that at the very least function but have
| no users?_
|
| There are.
|
| When Reddit switched from Lisp to Python, a number of
| Lisp users had negative things to say about that, and
| made their own clones over short time intervals to show
| just how superior Lisp is. There are a bunch of open
| source clones now: https://github.com/topics/reddit-clone
|
| Twitter is even more trivial to clone, and this has more
| results: https://github.com/topics/twitter-clone
|
| I'm not going to track down all the attempts to
| commercialize clones of either that shut down after a
| month, but they're out there.
| deadbabe wrote:
| You will learn very quickly a head start doesn't mean anything
| against very powerful competitors.
| JumpCrisscross wrote:
| > _a head start doesn't mean anything against very powerful
| competitors_
|
| You know what powerful competitors have a habit of doing? The
| thing that keeps them powerful? Buying those with a head
| start.
| deadbabe wrote:
| That's the diplomatic option, otherwise they'll just crush
| you.
| objektif wrote:
| Good thing is that they can not crush everyone all at
| once. Large businesses have priorities.
| JumpCrisscross wrote:
| > _otherwise they'll just crush you_
|
| If you go for their core business, sure. Otherwise, this
| is cartoonish.
| danielmarkbruce wrote:
| Even if you go for their core business they might not
| crush you! Social media being the obvious example.
|
| If you go for a full frontal attack on their core
| business, you'll probably get crushed. Short of that...
| working at a fang will make anyone not very scared of
| them.
| cellis wrote:
| Oh, but it does. Innovator's Dilemma.When Microsoft started,
| IBM could have destroyed them, if they were willing to become
| a software first and not a Mainframe company. When Google
| launched, Microsoft Could have easily "crushed" them, IF they
| were willing to cannibalize their existing business.
| Facebook/Instagram is one major data point where this didn't
| happen.
|
| Never forget that "powerful competitors" are slow. Very, very
| slow, even past 200 employees. Meetings and arguments
| increase the latency of delivering new products and services.
| Incentives start to be misaligned that make it difficult to
| continue delivering at the same quality ( why should I put in
| 2X to build 100X value, when I'm only getting 0.02%? ) Worry
| more about the startups that start alongside you.
| 0xbadcafebee wrote:
| I don't think he gets the point of a hype cycle. The point is to
| overinflate the value of a business, to suck up the dollars by
| the idiotic investors rushing to be part of the next Google, take
| all the cash you can as quickly as you can, and either exit, or
| shut down the business, after having pocketed millions/billions.
| The more and faster you grow, the more you can pocket. Whether
| this is sustainable or not is beside the point. Actually, if it
| seems sustainable, that's kind of bad for business. You'll get
| more money from the inept VCs if you tell them you'll have
| insane, impossible growth.
|
| Yes, AI startups are doomed. So what? Founders can make millions
| with a doomed startup.
| simbolit wrote:
| TLDR: The underlying basis is the same for everyone:
|
| # the whole internet to scrape
|
| # the largest amount of gpu compute you have ever seen
|
| # more or less open source fundamentals
|
| thus "ai" will become a commodity, unless you have specific non-
| public useful data.
| ldjkfkdsjnv wrote:
| Yeah but you raise capital, dont have a boss, and get some psuedo
| elite social status. You get to look down on others, tweet on
| twitter, act like you had a hand in developing AI. You get to
| code random software you come up with off the top of your head,
| try to the newest frameworks. You develop intuition for
| understanding capital markets, innovation, and what to value. You
| get to hire people that work the same hours as you, and are
| probably equally as talented, except they get 10-20x less equity.
| What a great way to be employed.
| herval wrote:
| nice job summarizing everything starting a company is NOT.
| ldjkfkdsjnv wrote:
| this is almost certainly how it is for ivy league grads
| raising a few million with no product
| ngngngng wrote:
| Don't get caught up in the hype. The technology is becoming
| commoditized, and only startups with unique advantages will
| survive. Look for startups with proprietary data, special
| algorithms, or deep domain expertise. Avoid ones that are just
| gluing together APIs or building generic applications. And don't
| chase the hype train. Invest in startups with a real chance of
| success.
| morkalork wrote:
| If you want to start your own, it's kind of a depressing
| realization to have after working at a start-up or interacting
| with others. It's not some cool tech or algo that makes the
| difference, it's things like the CTO is leveraging contacts
| they made previously in their career to get deals to access
| data that no mere mortal could get, or board members who broker
| sweet partnerships with legacy companies that matter.
| kirse wrote:
| _Avoid ones that are just gluing together APIs or building
| generic applications._
|
| Debating if I want to respond to this, because there is
| fistfuls of cash right now in software consulting for this sort
| of work. Boring CRUDs and API integrations make a lot of the
| world go round (quietly).
| jqpabc123 wrote:
| _Invest in startups with a real chance of success._
|
| The difficult part (as it has always been) is identifying
| these.
| ericjmorey wrote:
| I don't get the Intel example. That business has been a duopoly
| since the 90s, but he's using it as an example of something that
| won't be able to create and maintain a large advantage for
| decades?
| prewett wrote:
| The example isn't Intel, the example is some company three
| times faster than Intel. Think DEC Alpha, Sun, SGI. None of
| them were able to maintain their advantage in speed (although
| for SGI it was graphics and not CPUs where they failed to
| outpace the commoditization).
| personjerry wrote:
| How's that different from any other tech startup?
|
| Tech and software have always been a commodity. Twitter is barely
| more than a CRUD. You always had to build your moat, i.e. network
| effect or data.
|
| The only difference is whereas we used to do "tech" with
| "algorithms" now replace that word with "AI", and it works a lot
| better. Seriously, replace all instances of "AI" with
| "algorithms" in this article and it could've been written 20
| years ago.
|
| IMO very empty virtue signaling article.
| Mistletoe wrote:
| Well I can't build a Twitter on my own PC (need other users)
| like I assume I can in a few years with LLMs you run locally.
| AI is more general purpose and can do lots or all of the things
| the algorithms could do before and I needed specialization for.
| Not only that, but Microsoft and the big players are going to
| make an AI that is better integrated and more advanced than any
| startup could for my purposes.
| j-wang wrote:
| Good point--that is the point. When there's a hype cycle,
| people often check their normal business sense at the door in
| terms of customers, value generation, and defensibility. Are
| there any of these? No, but it's crypto. Or now AI.
|
| I do go somewhat beyond that in pointing out exactly why most
| of these startups don't have defensibility.
|
| Perhaps for some people it doesn't need to be said, but back
| when I wrote this... and now... the market seems to suggest
| that it isn't that obvious.
| lemmsjid wrote:
| I think you're really re-stating his case, which is interesting
| because you then call it 'empty virtue signaling'.
|
| He's applying a standard analytical lens to AI startups, e.g.
| looking for their moats through finding differentiators in
| economics, data, scalability, etc. He finds that "doing AI" is
| not a stable enough differentiator to compel him as a VC. He
| then lays out his reasons. There are plenty of startups selling
| themselves on their AI platform and/or acumen, so it's rather
| automatically relevant to a VC at least.
| JumpCrisscross wrote:
| > _finds that "doing AI" is not a stable enough
| differentiator to compel him as a VC_
|
| This is a better thesis than the article's. Uber for X / AI
| for Y is not a valid pitch.
|
| But the article goes further. It surmises the only two valid
| moats are a capital advantage (compute) or intellectual
| property (data). These are the most trivially-verifiable
| moats for a third party. Which makes sense for a VC to
| prioritise them. But they're far from the dominant mode of
| differentiation.
|
| Plenty of "AI" start-ups will do well because they found a
| niche, had the right team to sell to it, and developed
| quickly enough to keep customers hooked. They won't win
| because of AI _per se_. But they won 't lose for lack of
| access to more compute or special data either.
| danielmarkbruce wrote:
| Exactly. Scale, stickiness and getting the details right
| via focus are all things.
|
| The author seems to be misguided - no one is really
| suggesting AI is a way to win. It's a value prop thing, not
| a competitive thing. SaaS was a value prop thing, not a
| competitive thing. Mobile was a value prop thing, not a
| competitive thing. WWW was a value prop thing, not a
| competitive thing.
| VirusNewbie wrote:
| If we replace all instances of AI with SaaS, his point still
| stands.
|
| However, many VCs aren't looking for a moat when they invest
| in Saas, they're looking for a good product with good
| founders and a good team.
|
| IF you're only looking for moats, you're going to be a bad
| VC.
| SoftTalker wrote:
| Twitter, Facebook, other social media have social lock-in. You
| use it because your friends use it, and then their friends use
| it, and so on. And you don't use anything else because your
| friends are not on those platforms. The moat is deep.
|
| For AI stuff, is there anything like that? Why do I care if
| it's ChatGPT or some other AI writing my paper or my code or
| whatever else people do with these. The AI is (at least
| somewhat) fungible.
| coffeemug wrote:
| For the same reason you go to google.com instead of bing.com.
| SoftTalker wrote:
| I used Google when it was better than AltaVista. I use Duck
| Duck Go now. Google is pretty bad these days.
| metabagel wrote:
| What on earth is virtue signaling, and how did it get into this
| discussion?
| xanderlewis wrote:
| It's when people say things they think will increase their
| social status, regardless of whether it's truly helpful to do
| so or whether or not they even believe it.
|
| I have no idea how it relates to this discussion.
| xanderlewis wrote:
| I don't necessarily disagree, but replacing 'AI' with
| 'algorithms' seems a bit suspect (not least because one is a
| subset of the other). It seems unlikely anyone would have
| imagined even twenty years ago that there wasn't room for a
| multitude of startups developing their own _algorithms_ ,
| because even today that's the case.
|
| Current 'AI' itself virtually is (built on) a single example of
| an an algorithm, which is why on the surface there seems to be
| far less scope for differentiation. There's room for genuinely
| new architectures and techniques, but that's not what most of
| these 'AI startups' are offering (even if they pretend
| otherwise).
| jtriangle wrote:
| They're not any different than any other startup. It's
| difficult to get a business off the ground, profoundly so. Most
| of that difficulty is in management, not the actual product.
| You can have a very middling product, raise capital well, hire
| the right personnel, scale out at the right time, spend money
| where it's needed and avoid spending money where it's not, and
| find yourself very, very successful before long. The opposite
| is also true, you can have something that is in earnest
| revolutionary, and fumble it to the point you're left with
| nothing, you could also just fail your luck roll and be left
| with nothing, many many more paths to failure than there are
| paths to success. That's why most fail, it's simply more
| likely.
|
| The important thing to remember is, you don't just get one roll
| at it. You can try as many times as you have time to do so.
| Most of the wildly successful people I know were wildly
| unsuccessful before they were wildly successful. The ones that
| hit it off the hop had more money up front to brute force
| things into success which ultimately works out to them just
| being able to finance their failures, not that they were
| without failure because of their starting position.
|
| But yeah, this article is basically just pulp.
| jes5199 wrote:
| personally I'd be happy with a non-startup "perfectly ok
| businesses"
| gimili wrote:
| I think it is more complex than the author thinks.
|
| There are clearly defensible aspects for ai startups.
| Specifically I think these are: a) in-context and collaborative
| features (since working alone with ai through a chat box is
| unlikely the only way we will interact) b) gated knowledge/data
| (since commonly available technology can be leveraged with unique
| data) c) edge computing and offline usecases won't be the center
| piece for many classical companies and therefore can be very well
| exploited.
|
| I wrote up a framework to assess LLM powered Startups/Ideas here:
| https://assistedeverything.substack.com/p/the-three-hills-mo...
| neptudemon wrote:
| Doesn't (a) fall into the bucket of UI, i.e., something that
| can be easily copied?
|
| Agreed on (b) - I think this is anyone's best shot at a moat.
|
| Curious to see how (c) evolves. It's unclear to me whether the
| future of these things are running locally or whether we'll all
| continue hitting remote APIs
| j-wang wrote:
| I think various of those aspects you call out here, I do as
| well. The specificity of the application is fairly key, whether
| it comes through proprietary data or application-specific stuff
| or simply business-lock-in.
|
| Interesting hill analogy--I do broadly agree with the areas.
| germinalphrase wrote:
| Most data about [how people work/play/live] is not being
| captured. Non-public datasets are abundant. Build a tool to
| capture and utilize that data in a useful way, and you've built
| yourself a moat.
| buitreVirtual wrote:
| Something that gets overlooked here is that most people will
| associate the early players for a particular kind of AI (OpenAI)
| with being at the forefront. Even if there are 100 competitors
| offering the same service with similar quality, sticking to the
| best-known provider gives confidence to enterprise buyers,
| especially when they have to explain the purchase to their bosses
| or shareholders. This, and the ability to attract and retain top
| talent, will continue to be an advantage of the early winners as
| long as they also continue to focus on pushing the boundaries and
| don't fall too far behind when competitors come up with new
| advances. Heck, they can even relax and cash out after a while
| and continue to reap the benefits, like IBM continues to do for
| enterprise computing even to this day despite (shamefully) not
| caring to be at the forefront anymore.
| megaman821 wrote:
| He kind of hints at one way to be successful with his mention of
| Azure and private blockchains. If Intel or Boeing are going to
| use AI to help with design, they are going to have train private
| custom models from their proprietary data. I am sure there a
| several other services that enhance the effectiveness of AI that
| a startup could be based on.
| agentultra wrote:
| A lot of these companies also misunderstand their value
| proposition, the classic, "Uber for X," approach to starting a
| company. Also known as, "Me too!"
| lacker wrote:
| This reminds me of people saying that search engines were doomed
| as a business in the late 90's. They have no real moat. All you
| need is to gather all the text on the internet, make an index,
| and build it on well-known information retrieval algorithms.
| PageRank was even in a published paper.
|
| Well, this was only mostly true. With search engines, there was a
| "winner-take-all" effect. Yes, many companies could build search
| engines, but Google was just a little bit better. Once one of the
| search engines is a little bit better, why would you use anything
| else?
|
| Eventually, Google figured out how to create a real moat, by
| using click data to improve search result ranking. Even though
| Microsoft is willing to spend billions of dollars on Bing, they
| don't have access to Google's user data, and aren't quite able to
| match Google's search quality.
|
| I believe that many AI startups will have a similar "data moat".
| If you are the first AI company to get a significant amount of
| users, you may be able to learn from their behavior to improve
| the product. If you can do this, you'll have an advantage that
| competitors won't be able to easily copy.
|
| So just make something people want, gather data on what your
| users are doing, and use that data to make your product better.
| If you do that right, you'll keep growing, and you'll be able to
| describe this simple strategy as a "proprietary data advantage"
| to give your slides more buzzwords if you need them.
| amelius wrote:
| The article applies to medium and small businesses. For 99% of
| these businesses, search engines are a doomed endeavor.
| willdr wrote:
| Don't worry, Google are hard at work undermining the product
| they worked so hard to build. Every year google search is worse
| at surfacing what you're looking for and better at an ads
| platform, and the advent of LLMs and SEO agencies flooding the
| internet with no-value regurgitated content is also not
| helping.
| bdcravens wrote:
| Additionally, Google dismissed the trend of other search
| engines: everyone was building a portal, which for the most
| part didn't add much value for users. Even today, Google, which
| is really just an advertising company, has no ads or other
| content on its main page. (it does have a few internal links on
| the extreme edges, but has arguably the most white space of any
| online company)
| j-wang wrote:
| Search engines have always been a bit weird. Do they have
| network effects? Why is it actually winner-take-all? I've had
| spirited conversations with a lot of different people and
| academics/microeconomists on the topic and I don't think anyone
| truly has a good conclusion. It doesn't naturally seem like it
| should be the case.
|
| Anyway, I think your point here is interesting and was kind of
| the idea behind a lot of the "gather lots of data" startups. A
| lot of those failed in part because the frontier of AI is
| moving pretty quickly. You need a lot less data to do
| interesting thing today than you did not that long ago. Because
| we've thrown more and more data at more and more compute, I
| think people don't appreciate how much we've truly progressed
| algorithmically. You need an order of magnitude less data to do
| the same thing for each "generation" of AI.
|
| That frontier cuts against the ability to build a moat on user-
| generated data, so long as it's readily available or somewhat
| replicable. Your competitor is naturally going to have a
| cheaper time getting into market than you if they wait longer
| to do so.
|
| However, this definitely does stand if your area truly is
| obscure (e.g. specific industry), annoying to gather data in
| (e.g. certain healthcare applications), or actually proprietary
| (e.g. your own device data with a different modality).
|
| Not putting words into your mouth that you aren't saying the
| latter here--just making a distinction since it's easy to
| imagine any data being a moat, which is a common mistake I see.
| JumpCrisscross wrote:
| > _Why is it actually winner-take-all?_
|
| Is search winner takes all? Or is it advertising?
| j-wang wrote:
| That's an interesting question since advertising certainly
| follows search dominance, but it doesn't necessarily follow
| the other way around. Google figured out how to monetize
| its dominance with advertising before it had the behemoth
| ad platforms they have today. It's pretty much the same
| with the popular social networks.
|
| The answer (more logically) should kind of be neither.
| Advertising obviously has a lot of channels, and even
| though Google has both Adwords and its display advertising
| network, it doesn't follow those really need to be the same
| provider... at least outside of more data to do more
| targeted ads. But, again, advertising dollars will follow
| platforms that price for ROI.
|
| Better targeting mainly adds to the amount that Google and
| Facebook can charge for their ads and still have companies
| pay for them. It doesn't really add to their dominance
| directly (I say directly since, obviously, more money can
| buy more R&D/employees/regulatory capture/acquiring
| competitors/just-paying-for-dominance like with Google
| paying Apple. But that's all indirect).
| tqi wrote:
| Agreed that it's not intuitive. My guess is that it's not a
| network effect in the traditional sense (where having more
| users makes the product more valuable), but rather that there
| is something about a product category being free that lends
| itself to being winner take all. Users are less motivated to
| comparison shop, and if any one company gets enough
| marketshare to be a default choice then maybe it just
| snowballs. Like if tissues were free, would Kleenex have a
| monopoly bc everyone just reaches for it by default?
| j-wang wrote:
| Potentially--I suppose free can lead to more justifiable
| laziness in finding different resources for different
| things.
|
| The argument I generally hear from certain microeconomists
| is that they still expect there to be value in niches,
| given Google's highly general nature. If you're looking for
| super specific topics, it often doesn't perform extremely
| well. You'd find it valuable to go to a resource tailored
| for your area.
|
| Anecdotal, but I've personally found it to be true--for
| specific hobbies, or for more "real" reviews, I search
| reddit. Except I use Google to search reddit, since
| reddit's search sucks, but still. Amazon or Etsy or
| whatever can be considered "search engines" for highly
| specific topics (purchases, and purchases of a specific
| type of product) and they do have success there too, but
| Google is still often the front-page to get people to those
| sites.
|
| Maybe it's just that Google is just a default "front-page"
| and enough tech-non-savvy people just use it to get to
| where they want to go (e.g. the classic "type Facebook into
| Google to get to Facebook") that it sticks. That's maybe
| the most compelling reason I've heard, but it is also
| somewhat unsatisfying as well (as well as precarious if the
| defaults ever change--but maybe that's true!).
| tqi wrote:
| > The argument I generally hear from certain
| microeconomists is that they still expect there to be
| value in niches, given Google's highly general nature. If
| you're looking for super specific topics, it often
| doesn't perform extremely well. You'd find it valuable to
| go to a resource tailored for your area.
|
| I think that is true, but only within a very narrow band
| of topics that are broad enough to require a search
| functionality (lexusnexus, webmd, arxiv, etc). I think
| most topic niches that I would be interested in are more
| often served by niche publications (ie I wouldn't
| need/want a search engine geared toward photography, I
| would mostly go to specific publications and sites that I
| trust).
| paul7986 wrote:
| Once Google became a verb well then ..that's when they won?
| m_0x wrote:
| Because the phrase is "Just google it" not "Just search-
| engine it"
| fardo wrote:
| > Why is it actually winner-take-all?
|
| The power of defaults, mostly.
|
| The average user experience of picking up an internet-
| connected device has been very intentionally cultivated by
| Google. Whether you're in your browser or on your phone,
| Google's spent a lot of money building up Chrome as a browser
| ecosystem, Android on mobile, and paying off Apple on iPhones
| and competing browser vendors like Firefox, to guarantee
| that, whenever possible, Google is always the default search
| engine. The only non-Google default will typically be on
| Edge, which only has about 5-6% penetration. Since Google
| historically has always been the best search engine in the
| space, does not explicitly charge its users money, and (at
| least for average users) is really good at surfacing what
| they're looking for, most users feel no need to look
| elsewhere for a search engine because the default just works,
| switching would demand an effort, and Google is what they'd
| want anyways. The moat isn't big, but Google has put a ton of
| work into ensuing that any competing search engine requires
| an intentional and active choice of users to seek you out
| while they're worse.
|
| At least until the recent AI play by Bing, this tiny moat was
| always sufficient, because if you start from scratch on
| search, you're essentially guaranteed to be worse, and all
| other 'serious' offerings under the hood were weak
| alternatives: essentially one of "Bing search API wrappers"
| (worse results), "nation-state-actor search engines" (for
| most users, worse results), or "Google, but with some cursory
| privacy measures, a subscription fee, or filtration features"
| (which wasn't something most users care about).
|
| Recent chat AI represents a competing alternative to doing a
| search in the first place, which jeopardizes the "we have
| essentially all defaults and users can't be assed to switch
| to a worse search" barrier to entry that Google historically
| relies on, which is ringing alarm bells for them.
| podnami wrote:
| Google and Facebook didn't have a moat (Remember MySpace? They
| had network effects too), but they were first in creating a
| culture where they approached data capture and utilisation as
| part of their DNA. AI startups might be very well suited to
| capture initial market share but can always be turned to
| features by Microsoft or Google as the incumbents are just
| smarter and faster this time around. I can potentially see AI
| startups disrupting product categories as they be can take more
| PR risk (uncensored models for instance). But if they get too
| big they'll be turned into features at any given time. I think
| it's just more brutal of a market in 2023 than it was back in
| 2003.
| zombiwoof wrote:
| MySpace AI
| ToucanLoucan wrote:
| > Eventually, Google figured out how to create a real moat, by
| using click data to improve search result ranking. Even though
| Microsoft is willing to spend billions of dollars on Bing, they
| don't have access to Google's user data, and aren't quite able
| to match Google's search quality.
|
| I was nodding along until I got to this. Google _had_ , past
| tense, excellent search results. Now they are at best, a solid
| mid-tier search product that I often find myself abandoning in
| favor of either DDG or even Bing on occasion.
|
| IME, Bing shines in one particular area, which is location/near
| me type searches. It's peerless in this space in particular and
| IMO they should be leaning into it more in their marketing.
| Google can get me the best seller of gizmos on the _Internet,_
| but if I want to go to a store and get something that day, Bing
| is better at that.
|
| Meanwhile Google is steadily trending downwards in very nerdy
| niche searches, which is a shame because it used to be quite
| good at them. You specify terms in your quotes or block with
| minuses, but these are treated as "suggestions" now, that are
| overridden if Google's mystery algorithm decides that you don't
| actually know what you need despite directly expressing it to
| the bloody thing, especially if their "correction" means they
| can direct you to buy something even if you don't want to
| actually buy anything.
|
| And, even when you want to buy things... perfect example: I
| wanted a small set of drawers for a particularly tight alcove
| in my desk that's otherwise wasted space. I spent some time on
| Amazon for awhile but amazon's search is even worse than
| google's, so I googled "closet drawer cabinet -fabric" and the
| -fabric bit is quite important because I was getting frustrated
| getting page after page of hits on Amazon that were shitty
| little fabric drawer setups. I wanted shitty particle board,
| thank you very much. And Google, in it's infinite brilliance,
| returned, I shit you not, a full page of shopping
| advertisements that were _all fabric drawers._
|
| Google is still my first go, out of habit more than anything at
| this point, but increasingly I find their search tool lacking
| and I know I'm far from alone in that.
| hedgehog wrote:
| If Google really has a moat why do they pay Apple so much to be
| the default search engine and why do they need Android to avoid
| getting cut out of mobile advertising?
| adventured wrote:
| Moats come in all sorts of flavors.
|
| Having a hyper profitable business that you dominate can
| provide a cash moat: the ability to crush your competition by
| outspending them.
|
| You can do that in lots of ways: lawyers (Microsoft was
| nearly sued into oblivion early on),
| advertising/marketing/brand building, creating a talent roach
| motel (they go in, they never leave) just to deprive your
| competition of the best people (by paying way above what your
| competition can match), paying for positioning in the market
| (for example: buying shelves at retail stores for
| distribution), you can even afford better networking globally
| to be faster by spending large sums; and so on.
|
| Being able to buy positioning to lock out the competition, by
| leveraging your enormous profit machine, is a type of moat.
|
| Google (Alphabet) can get away with that spending (re
| shareholders) because that's the business they're in, it's
| core, and it's already generating hugely, so shareholders
| view the spending as protecting an existing critical business
| (maintaining a moat in this case by continuing to pay Apple
| etc). Microsoft can't get away with the same spending (even
| though they can technically afford it), because it's a
| prospective business (a maybe outcome) that isn't spitting
| off huge profits and the return on massively ramping up
| spending is questionable to shareholders (who will ask
| questions about a missing $20b in profit next year).
|
| Does Google have a quality / performance moat with their
| search product? Even if they do, given the ~$100 billion in
| profit at risk (for that division, it subsidizes a lot of the
| rest of Alphabet), it's not a question they want to find out
| the answer to necessarily. Instead they can spend $20 billion
| and not have to find out if a competitor could take them
| down.
| hedgehog wrote:
| The parent post suggests that Google's moat is search
| quality, I suspect that is not true. Google earns about
| $70-80B a year, if they even suspected there was a way to
| reduce or eliminate a $20B yearly expense it would be top
| priority to investigate. We can assume they've looked at
| this problem from a lot of angles. That they keep paying
| implies they have a lot of confidence that it's necessary
| and if they didn't have the default slot a lot of users
| would use something else.
| wiremine wrote:
| A lot of tech industries, such as operating systems, search,
| and social media, benefit greatly from network effects. The
| rule of thumb is there is a major winner, an also-ran second
| place, and everybody else. Again, it's a rule of thumb, not a
| hard and fast rule. Sometimes this is driven by data (like
| search), and sometimes it's not (like operating systems).
|
| I think it remains to be seen if AI is one of those industries
| that benefits from network effects or not.
|
| A related question is: Are AI models platforms, or are they
| applications? If they're platforms, they'll benefit from more
| users and more data. If they're applications, there will be
| very different market economics in play.
|
| IMHO, they're applications.
| zirgs wrote:
| Stable Diffusion is a platform. It now has a huge community
| that makes custom models for it.
| campbel wrote:
| One thing folks downplay in the original search wars was the UX
| decisions of Google. It was a plain page with just a search box
| and the results were clutter free and easier to parse. As a
| young computer user at this time, this is what brought me to
| Google. I had no sense of which platform was providing more
| relevant results.
| andrewla wrote:
| > Eventually, Google figured out how to create a real moat, by
| using click data to improve search result ranking
|
| This is revisionism -- Google was far superior to any competing
| search engine long before Microsoft embarked on its search
| engine adventures. Google was hand-coding heuristics well into
| the Bing era. It wasn't until Amit Singhal left Google and
| search that they pivoted to more machine learning techniques
| that could use the click data effectively.
|
| This corresponded with the beginning of Google's long decline
| in search quality, buffeted mostly by the fact that their on-
| page quality systems were extremely sophisticated at cutting
| out spam and SEO. The detection was far from perfect, but so
| many miles ahead of the competitors that their competitors kept
| unearthing spam that Google had long since excluded from its
| index but whose fossilized remains still polluted the web.
|
| The moat that Google had was just that they were really good at
| search quality and PageRank was only a small part of that. In
| other words, no moat at all, just a better product.
| dartos wrote:
| I've only started hearing people talk about moats recently,
| at least by that word.
|
| What happened to building good products?
| tomcar288 wrote:
| a moat is any product or feature set so good that you
| absolutely need to use it or it's just that good. for
| example, Gmail and google maps was a moat for google in the
| early days.
| saulpw wrote:
| Not quite. A moat is a reason that you can't/won't leave
| the company/product. An unapproachable feature set might
| be a moat, but generally a moat is something other than
| product, that prevents your competitors from succeeding
| by creating a clone of your product.
| andrewla wrote:
| That's not the usual sense of "moat". A moat is usually a
| structural or regulatory protection that prevents a
| superior product from competing without first crossing
| that moat.
|
| For example, once upon a time building a superior web
| browser was hard, because the moat you had to cross was
| that Microsoft would always prefer their own browser, so
| Windows created a structural barrier to adoption of new
| browsers. So the amount by which you had to be better
| than Internet Explorer back in the day was critical,
| because if you were just a little better you would never
| get enough adoption. You had to be much better or
| convince Microsoft to lower the moat.
|
| Bringing up a new stock exchange was another protected
| industry -- the incumbents had built a huge regulatory
| apparatus around themselves which meant that to compete
| with the incumbents, you first had to comply with a lot
| of regulations which were themselves molded after what
| the incumbents were doing. Exchanges like BATS took a
| long time to clear that hurdle, and many exchanges never
| made it there, even with superior execution technologies,
| and were consigned to be dark pools instead of lit
| markets.
|
| Theoretically social networks have had the moat of the
| "network effect" of having a large user base -- Facebook
| is useless because all your friends are on MySpace so
| there's no reason to switch, and MySpace is useless
| because all your friends are on Friendster. The
| implications here are that incumbents protected by moats
| are fragile; once the moat is crossed they can no longer
| compete because they've languished, so get eaten alive
| (as the two examples here or say traditional taxi
| services).
| staunton wrote:
| No quality of products can compete with a monopoly. The
| money goes where the largest profits are expected, which is
| where one hopes to capture a new market
| CharlesW wrote:
| > _I've only started hearing people talk about moats
| recently, at least by that word._
|
| Then you're one of today's Lucky 10,000! The idea of an
| "economic moat" was popularized by Warren Buffet, starting
| in 1986. https://xkcd.com/1053/
| JumpCrisscross wrote:
| > _only started hearing people talk about moats recently_
|
| It's a decade-old term [1] describing an older concept [2].
|
| > _What happened to building good products?_
|
| This is necessary, but insufficient on its own. Big "M"
| marketing is important. (Betamax vs VHS is the canonical
| example.)
|
| [1] https://en.m.wikipedia.org/wiki/Economic_moat
|
| [2] https://en.m.wikipedia.org/wiki/Porter%27s_five_forces_
| analy...
| whynotmaybe wrote:
| Can confirm, google was superior from the start. I remember
| switching from altavista to google and it felt as
| revolutionary as switching from Windows 3.11 to Windows 95.
| bigbillheck wrote:
| > This reminds me of people saying that search engines were
| doomed as a business in the late 90's.
|
| I don't recall people saying anything of the sort.
| rvz wrote:
| Those in AI that are not data providers or a source of enormous
| amount of new private data and access to data centers are doomed.
| ChatGPT wrappers have a huge platform-risk by the GPT
| marketplace.
|
| The ones that are dependent on VC cash and making little money
| against open source models or cheaper solutions are going to lose
| the AI race to zero.
| hn_throwaway_99 wrote:
| I thought this was a pretty good analysis. And for comments along
| the lines of "Most start-ups are doomed", the article
| acknowledges this in the first sentence ("The statement that most
| AI startups are doomed can be fairly mundane. After all, most
| startups are doomed, just by the numbers.") but then goes on to
| make an argument specific to these AI startups.
|
| I do, though, believe the author missed a large class of AI
| startups that I think will likely succeed in the "Wait, so what
| IS defensible?" section: startups that focus like a laser on very
| specific, semi-niche workflows where things like UX and
| compliance are critical. My best example of this so far is
| Harvey.ai, whose tagline is "Generative AI for Elite Law Firms":
|
| 1. First, elite law firms have lots of money to spend, and
| they'll spend it if they see an ROI.
|
| 2. There are plenty of Web 2.0 startups who won primarily because
| of first-mover advantage. I mean, Docusign wasn't exactly
| amazing, world-changing technology, but they became synonymous
| with "legal signatures over the internet" such that they became
| the default for this use case.
|
| 3. Obviously something like "generative AI for elite law firms"
| has _tons_ of compliance concerns around it. If Harvey.AI can
| address that, it 's a huge wn. As another example, I know of some
| big financial firms/banks that have giant committees around
| anything remotely label-able as "AI" because there are so many
| compliance concerns around AI (a system that gives you an answer
| with no visibility into how that answer was generated is anathema
| to the "everything must be auditable" mindset of the financial
| world). Again, Docusign is a good analogy here, because so much
| of their initial work was not in tech but ensuring that there was
| a legal framework (in many jurisdictions) that would deem
| internet signatures valid.
|
| My overall point is that a UX that is highly tailored to
| specific, profitable use cases can still win out.
| __loam wrote:
| I'm biased because I worked in legal tech for a while but I
| think Harvey is kind of fucked. There's a bunch of cloud native
| legal startups in the space already that can easily plug in
| this technology and that already have an established reputation
| and rapport with existing users.
| resolutebat wrote:
| > whose tagline is "Generative AI for Elite Law Firms"
|
| That's a terrible tagline. _Why_ would an elite law firm want
| generative AI?
|
| FWIW, their homepage is worse, it contains the single phrase
| "Unprecedented legal AI" and a waitlist signup button, nothing
| else. (Which is also unintentionally funny, because lawyers
| care a lot about precedents!)
|
| https://www.harvey.ai/
| bloppe wrote:
| Drop the "AI". It's cleaner.
| elhospitaler wrote:
| I think this is mostly true, except I imagine OpenAI has a more
| defensible head start due to all the user data they've collected
| from people's queries. If they can maintain their lead in model
| quality (which is definitely possible - the engineering task of
| training the best and largest LLMs is not for the faint of heart)
| and remain the "best" general use chatbot, I could definitely see
| them build an insurmountable lead with all of their user data.
| jeffreyw128 wrote:
| This is the dumbest thing I've read in a long time
| toddmorey wrote:
| tldr: most companies on the planet are "doomed to be perfectly ok
| businesses".
| dyarosla wrote:
| In short; if AI is a commodity, it cannot be your moat.
|
| This is especially relevant wrt startups which can't compete on
| compute or research: instead they must compete on something that
| is more defensible: unique data, first mover adv, etc.
| christkv wrote:
| I think we will see some pure play models for different verticals
| that will work but most apps will integrate an expected set of ai
| functions that will just be considered standard for all bigger
| apps.
| amelius wrote:
| AI developer is the new web developer.
| bdcravens wrote:
| Last year crypto, this year AI, next year...?
| jqpabc123 wrote:
| And these two have a lot in common. Both consume large amounts
| of computing resources and energy to produce questionable
| results.
| beefman wrote:
| You can have a moat if you have an app store...
| ChrisAntaki wrote:
| The article mentions "And, indeed, even Alphabet/Google
| internally have said this."
|
| Just a reminder, any employee can write a document saying
| anything.
| zombiwoof wrote:
| Does this include porn ai?
| axegon_ wrote:
| Well... Yeah. Most startups are doomed by definition. The AI
| breakthroughs definitely made a lot of people open their pockets.
| Admittedly a year and a half ago I was banking on a second AI
| winter - it seemed that we had peaked for the time being. OpenAI
| changed that and re-opened the gates that were starting to close.
| Funny thing is we are still recovering from half a decade of
| "everything-blockchain". While I did say that blockchain was
| nothing more than a ponzi scheme(and I still stand by this
| statement), in the realm of AI, I'm not entirely sure what to
| expect.
| tinyhouse wrote:
| I like the article but I also disagree with one important
| assumption that author makes implicitly. It assumes that LLM is
| all you need so in order to differentiate you need something that
| others don't have, like health care data. The reality is that for
| many problems you still need a lot of work to build a quality
| solution around LLM. Not something that you can build in a
| weekend.
| molave wrote:
| It's just like most bubbles (automaking, 1990s dotcoms, crypto,
| etc)
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