For a long time, I’ve had this old poster that illustrates the mechanics of the first steam engine in my office. One might wonder what does a steam engine has to do with the “groundbreaking” technology companies a VC gets to interact with. The answer is “drastic productivity improvement.” The poster helps remind myself that with each tech breakthrough, it unleashes a tremendous amount of productivity — thus, value and wealth — within the society. Like how the industrial revolution freed up labor and accelerated production, the age of AI Automation is going to generate significant value for humanity in multiple ways.
Why AI Automation matters now
The term AI is not new — it originated in the 1960s among computer scientists. However, the real breakthroughs came within the last decade when we have developed new algorithms/ techniques set of Machine Learning (a subset of AI), Deep Learning (a subset of ML), Reinforced Learning and Transfer Learning, etc. Because of those, coupled with an abundant amount of data for training, cloud computing, and sophisticated advancements of hardware AI chips, we are seeing highly valuable tech products being created every day based on such breakthroughs.
AI automation can materialize itself into multiple forms of products:
1) New product/category. Examples include self-driving cars, voice-enabled IoT, etc. Without AI being the backbone, we wouldn’t be able to enjoy these products;
2) Help with existing products’ scalability. Chatbot, virtual executive assistants, and face/image recognition would be in this category. It’s the territory where we used to have products in place but were either a) rule-based or b) man-powered and not scalable;
3) Inject efficiency and efficacy into software products. This is the category I’m most excited about as it will have profound implications for both B2B software / SaaS and enterprise customers across multiple industries and verticals. Think high-accuracy fraud detection, robotics/ smart manufacturing, predictive maintenance, and auto business insight, etc.
What has happened?
Over the past five years, investors have rushed into the AI space without thinking too deeply about the hype cycle. Namely, we have funded many self-driving cars/trucks/tractors and the related sensor components, but few can claim victory just yet. Instead, the abundance of capital inevitably diminishes the upside return and typically excludes startups’ purpose in solving a real market need.
That being said, one of the benefits of re-examing the AI investment landscape is that most of the hype dust is settled and we now have a clearer view of this new macro trend. The trend is going to boost humanity’s productivity to the next level.
Characteristics of the new “AI-first” species
What the new AI automation presents is a unique landscape shift that will make many incumbents struggle to adopt. On the other hand, it will also give rises to many “new species**” companies that are AI-first.
Last few times when major landscape shifts took place, we have had “new species” rose in response to the new world. Think Industrialization (Ford Motors), Computer (IBM, Intel, Apple, Microsoft), Internet / Cloud / Mobile (Salesforce, Amazon, Google, Facebook). Iconic companies were created when they can ride major tech tides.
This time is no different. Except the unleashed productivity will likely be in the trillions of trillions of dollars, and the impact will last centries. That’s why we need to study and take a closer look at the early characteristics of these “AI-first” companies — the new type of specie that they are.
In the next post, we will examine the interesting characteristics of these AI-first species…
**As strange as it might sound, when I was a kid, I was fascinated by Darwin’s book “On the Origin of Species.” The work not only lays out how animals adapt to a new environment, but it also paints a competitive dynamics between the old and emerging species that leads to such adoption/evolution. Even as an adult, I still love books and documentaries about nature.
It has absolutely delighted me when I find out how similar it is between nature and our business world — i.e. bio-ecosystem vs market dynamics, landscape shift vs new tech breakthroughs, startups & incumbents vs new & old species. How the business world evolves is really not that much different than our mother nature.