Partnering with ambitious Enterprise AI/Cloud Infra founders | GP @ Emergent Ventures
In the first innings of GenAI, much of the attention and $s have flowed into foundation models and GPUs. But that could change significantly. The foundation model layer is moving so fast that it may soon commoditize itself and move the action to higher layers of the tech stack. New, increasingly capable foundation models are coming out every day. Open source models are catching up rapidly with premier closed models. AI apps are being designed to select models for each request based on cost and task complexity. Model pricing is coming down rapidly even as quality goes up. For most pure-play, horizontal foundation models, marginal pricing may approach marginal cost, even as usage rises exponentially. In previous platform shifts such as PC, Internet and Mobile, a large portion of value eventually accrued to applications (e.g. Google, Amazon, Facebook), software platforms (e.g. Windows, Cloud platforms, Salesforce), and full solutions (e.g. Apple, Tesla). Some leading pure-play innovators in the hardware and enabling layers did create huge successes (e.g. Intel, Cisco, TSMC), but wider value accretion over time happened in the layers above. I did a rough, directional exercise looking through the top 50 public tech companies today by market cap, and classified them by the primary category they operate in (highly subjective, as many large companies eventually straddle multiple categories). Over half of the ~$20T combined market value of these top 50 tech companies comes from those I classified as Applications and Platforms. This included Microsoft, Alphabet, Amazon, Oracle & many others. A quarter came from those classified as Full Solutions, including Apple & Tesla. And only about a fifth is from those classified as Hardware or Enabling Tech, including Nvidia, TSMC, Intel et al. This is in spite of the rapid recent ascent in market caps in this category from the promise of AI. In contrast, the list of top 10 tech companies by market cap in the early Internet era frequently included pioneers in Hardware and Networking (key Enabling Tech for the Internet), including Cisco, Intel, Sun, Dell, Compaq, Lucent, 3Com, AT&T and Silicon Graphics. A large % of the premier tech talent in those days wanted to work in Hardware and Networking. Investors were disproportionately focused on those areas too. This led to those layers becoming so good that much of the new value accretion moved to the layers above. Similarly, apps and platforms for the enterprise AI era are just getting started, and that’s going to be a multi-decade, multi-trillion journey. Some leading foundation model players will expand to offer wider platforms or full solutions they can monetize better. Others leading models may come from those with a highly profitable, data-generating business at the layers above. But there will be many, many opportunities for pure-play app and platform companies that smartly build upon the underlying layers that seem to be getting ready for prime time.
Ritu Malhotra
6mo
Anupam Rastogi your illustrative prediction rings true. Might there be new data capture applications, also, that help to strengthen one or more of the categories above. We didn't have any parallel to them in the internet & saas era as inference was akin to being mostly 'model' based
Chetan Kulkarni
6mo
Very well put Anupam Rastogi!
Founder @ Magna | ex-AWS | Wharton MBA | PhD | IIT Delhi
6moVery interesting Anupam Rastogi. I also see the GenAI models as brains of AI-systems just like the CPUs in the early internet era were the brains of the computer systems/servers. Eventually, the infra layer does get a lot of price pressure from the application layer because it is further away from the revenue stream and also due to entry of other players as we are seeing now with the amount of funding that the companies building foundational models are getting. Also, a lot of times, gaps in the capabilities of the infra layer could be addressed at the application layer thus producing even more competition and reduction in value capture at the infra layer. That said the infra companies are getting smarter as we are seeing OpenAI and other companies providing applications such as GPTs to get closer to the consumer and capture more value.