Venture Capitalist at Theory

About / Categories / Subscribe / Twitter

2 minute read / Feb 2, 2023 /

When AI Favors the Incumbents

In his most recent earnings conference call, Microsoft’s Satya Nadella said “Every product of Microsoft will have some of the same AI capabilities to completely transform the product.” Today, Microsoft Teams launched AI features in Teams for a fee. Teams will summarize meetings, create chapters in those meetings, extract tasks, translate in real time, & develop templates for future meetings.

Incumbents have lept onto advances in generative machine learning more aggressively than any trend in recent technology history. Mobile, cloud, social - startups led each of those waves.

But generative ML differs because incumbents are pushing the envelope.

As startups incorporate generative machine learning into their products or develop new products, understanding the competitive dynamic with incumbents will be more important than before.

Over the past decade, the most advanced machine learning systems have often been built inside the largest technology companies. For example: PyTorch & zero-shot machine translation across 100 languages at Meta, TensorFlow and Tensor Processing Units (TPUs), built-for-purpose algorithm training silicon at Google. Github Copilot at Microsoft.

Tech giants have amassed the largest data sets, leveraged massive balance sheets to finance the human and financial capital-intensive work of training models - which can cost millions of dollars for each run - and amassed years of experience working with large data sets.

In addition to these the advantages, these incumbents have another edge : their distribution. Microsoft Office’s customer base spans more than 1m companies & 350m paid users. Microsoft will upsell new ML features across their product suite at a premium - just like Premium Microsoft Teams.

A full-frontal assault on the word processor, presentation-building software, chat, or spreadsheets must rely on more than just integrating generative machine learning. It will require a GTM innovation - a new way of acquiring customers to vie with the incumbents.

Doubly so in the current environment where CFOs are actively reducing costs by consolidating spend with fewer vendors given the economic climate.

The most successful startups leveraging generative models will innovate both in the application of the technology & also in its distribution : finding new applications, new customer segments, novel sales & marketing strategies - out of the focus & acumen of the incumbent giants.

Read More:

The Future of Startup Office