The Fate of The AI Service Industry
Last week I attended a small business expo in Los Angeles. The event hosted thousands of small business owners, some simply attending in person while others had a booth set up on the exhibition floor, all with the same goal of speaking about their brands, looking to make connections, new partnerships and grow their client base.
I met with multiple business owners across a variety of different industries and occupations, however something stood out the most to me and it was this plethora of small businesses and startups within the AI sector, particularly offering services in automation, data sorting, customer interaction and so on. So much so it seemed as though every other person I was approached by was running this type of business, they claimed to be unique, all had different business names, but were offering similar services.
I asked a simple follow up to each of them after hearing seemingly the same redundant pitch: “What makes your company different from all the other AI ‘optimization’ business here?” I also asked with “Other than different branding, is the technology you are using to provide the same services as your competitors proprietary?”
The answers I received back were an eye opening “no” to each query. Seldom were these AI business owners able to answer what made the technology they use to provide the services they advertise different or unique. What had dawned on me previously and this event brought even more to light was what that the vast majority of these so-called AI optimization, automation or customer-facing companies do is all pull from or utilize the same or similar pre-existing technology available to service their customers. In basic terms they take an existing generic AI program or bot, slap their label on it and sell it as their own, often times the different “brands” I spoke with were using the identical system as the others at the event process their customer’s data.
Which leads me to my next point, with a seemingly ever-increasing and voluminous number of startups and companies in this industry, providing the same services from the same source, how is it possible for this industry of generic “AI” automation to operate sustainably?
It seems everywhere we look there is AI in some form, people don’t fully understand it and in addition there are a myriad of companies popping up all over claiming to offer different solutions for businesses and individuals. I understand it’s the hot topic of our time, but it’s starting to become overwhelming , the amount of information, solicitation by these companies and talk surrounding AI has gotten so out of hand it’s created a whole industry sub-sector: “AI consulting” where individuals or companies offer advice to business owners to guide them as to which one of these “AI Services” being constantly thrown at them they should use.
The oversaturation in this marketplace and frequent use of the technology is also noteworthy. In this over-digital world, it has created an environment where human interaction, communication and service has now become premium feature. While indeed automation on back-end tasks, such as bookkeeping, running metrics, sorting leads and so forth are valuable, customer-facing, relationship-building interactions are still valued when dealing with a human. And now with seemingly less and less small businesses or new entrepreneurs engaging with their customers or partners personally, their competitors who do are seen as more exclusive and are in growing demand as well as client satisfaction.
For a business to scale sustainably or industry for that matter, there needs to be constant unique competition, innovation and evolution. An industry based on using the same product via the same manufacturer and putting a different label on it will not be able to be sustained because it is then entirely beholden to that one entity everyone is buying from and individual businesses operating within this cycle completely forfeit the ability to innovate. This is what is occurring in this retail AI space.
The companies in the AI sector who will survive, and scale are the ones creating and innovating constantly. The money in AI rests with companies such as Nvidia, they make the chips to process the information, and Open AI who creates the algorithms queries are run through etc. If you’re unable to create or innovate, which is what all these startups and “optimization” services lack, your business will soon die.
From a financial standpoint, no smart investor would put their money behind a business that’s model piggybacks off an organization’s free and available technology or resources, how is that sustainable? It’s like opening a restaurant without a kitchen and ordering the food from the restaurant next door and serving it to your guests, just putting your label on it. Why pay for the cheap label when I can go next door?
And that is what’s happening and will continue to. As the actual innovators in this sector continue to grow, AI technology will become increasingly accessible directly to consumers. Apple, Microsoft and Meta are all working on unique ways to provide their clients with the ability to optimize many aspects of their lives and business directly via their proprietary AI platforms.
While there are benefits to utilizing AI, this pop-up industry of automation services gaining short term traction by using the trending and engrossing moniker of AI will soon face a similar fate as the various other tech fads before them.
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- Vince Calace
Founder - Venture Business Development