AI is turning into the worst possible business setup for AI startups. A commodity that requires huge capital investment and ongoing innovation to stay relevant. There’s no room for someone to run a small but profitable gold mine or couple of oil wells on the side. The only path to survival is investing crazy sums just to stay relevant and keep up. Meanwhile customers have virtually zero brand loyalty so if you slip behind just a bit folks will swap API endpoints and leave you in the dust. It’s a terrible setup business wise.

There’s also no real moat with all the major models converging to be “good enough” for nearly all use cases. Far beyond a typical race to the bottom.

Those like Google with other products will just add AI features and everyone else trying to make AI their product will just get completely crushed financially.

There is clearly a very strong moat. OpenAI is close to 1 billion active users on ChatGPT while Claude barely have any non-business users. Even though Anthropic had better models at different times this year, I never stopped using ChatGPT and paying for Plus.

We just don't know who will win in which area yet. It doesn't mean there is no moat.

If you think of it like cloud, where it's a commodity that reaches competitive prices, then you can use it to build products and applications, instead of competing for infrastructure (see also: railroads, optical fiber)

There is tons of money to be made at the application layer, and VCs will start looking at that once the infrastructure layer collapses.

Here's a blog post I wrote about that: https://parsnip.substack.com/p/models-arent-moats