The AI feeding frenzy in VC land is reminiscent of the early days of the public access internet aka the .com boom. That corrected itself sharply but eventually most of those .com boom dreams came out, just a bit later and lots of VCs lost lots of money because they got the timing wrong.
Every time there is a major shift in tech you see this pattern repeat but I don't recall seeing it on that scale again since ~2000, even though lots of stuff has happened since then (for instance: the mobile revolution).
Investing in AI for the sake of companies using AI because it increases their chances of funding is the hallmark of a bubble, and that will probably end the same way it did before. But if you manage to pick the winners early it will pay off in spades. The big question to me is whether or not those winners will be part of the first wave or the second, usually it takes a while before a new technology really comes into its strength.
Until then there is a pretty big risk that what looks to be an early winner will be displaced by a party from the second wave which is better positioned to take advantage of later, more mature versions of that technology, which by then may well be able to displace those 'early winners' by a couple of guys with an open source package.
Because the TAM of people who want books is a lot larger than people who want pet supplies, and there are compelling reasons why people would rather buy books from centralized warehouses than local inventories (namely, that books have a long tail and pet supplies do not).
This makes 0 sense. What makes you think the market wasn’t already adequately serving people who wanted books? New technology is the only reason this sales pitch worked. It’s not enough to provide books. You need to provide more books at cheaper prices than existing incumbents. Without knowing the competitive landscape, you can’t say whether or not selling books is better than selling pet supplies.
Types of dog and cat foods are more substitutable than book titles, which decreases the value proposition of warehousing a larger variety.
And on the profit side, books don't spoil and are small and light.
Bezos is on record in an interview somewhere as saying that he didn't care what they sold on the internet -- they picked books (and later music and movies) because they were good fits to store and ship.
> Total addressable market and value proposition are key.
> A specific technology doesn't really change either of these.
Bezos chose books because they ship well. This is because he was going to use a new technology (the web) to sell goods and needed items that would work with this model well. So the decision to sell books had little to do with TAM and everything to do with technology. Basically the opposite of what you originally asserted.
Technology can't create a value proposition where none possibly exists.
There was no Pets.com business model that would have worked, with any technology shy of a free energy transporter.
In contrast, Amazon proceeded thusly.
1. There are a lot of people who buy books.
2. People who buy books would value a wider selection. (than current local options make available to them)
... therefore, what combination of technologies exist that allow Amazon to deliver on the above? (web storefront + centralized warehousing + efficient shipping)
The point of bubble businesses is that the first two components, neither of which have much to do with technology, are often absolutely missing.
Fundamentally sound business plan + new technology >> ?? + new technology
Too many bubble businesses are the latter, and people invest in them despite the ??.
Chewy was already a multi-billion dollar company by the time it was purchased by PetSmart. Chewy is now publicly traded at a value of over 16B.
Not sure what your point is regarding vet and pharmacy services. Businesses expand. Pets.com, had they been successful, would have likely done the same thing. To use your Amazon example: obviously most of Amazon's revenue is no longer generated by selling books.
Rationalize all you want but Amazon's retail arm still turns a loss, minus platform ads. Bezos realized early on that the bread and butter of Amazon is AWS (and Amazon software in general), and that's what's keeping the retail arm stable.
From a revenue perspective though, your argument is prudent. Maybe targeting books rather than pets helped it lessen its relative burn rate.
I develop a few interesting features using OpenAI in an existing product.
After a wow-effects of the first days, few users are still using it. If I talk to users they say features are awesome but they are not actually using it. Really funny.
Do you have experience of OpenAI API-based product that has high retention ?
> Do you have experience of OpenAI API-based product that has high retention?
perplexity.ai comes to mind. I introduced it to my students at uni a few weeks ago and they now use it extensively over Bard/ChatGPT. There are others too, like copy-writing tools (jasper.ai, copy.ai) who seem to be doing well. Besides, from experience, GitHub Copilot is so good, I can barely program without it.
Around 85% profit. It wouldn't be possible to get the same result from ChatGPT without a ton of prompt engineering and manually retrieving data and inserting that into your prompts. Plus, we don't just do a single API call and call it a day. A single button press in our app can set off a process which calls the OpenAI API over a dozen times plus retrieves data from several other APIs to help with the prompting
They will still do that, but within the context of having an application that takes advantage of recent developments in AI. Whether that's smart or not is an open question, time will tell. But, given that YC is a seed level investor (with some follow on capacity) it makes sense because the 'downstream' VCs are handing out money like candy to start-ups that can plausibly claim to be AI startups. The idea is that some of these will go on to corner their respective markets and that by getting in early you guarantee yourself a place at the table later on.
When you say handing out money like candy, it makes me think I should try to apply to something. I am spending most of my time doing low-paying contracts that integrate generative AI for other companies or startups. And then I use that money to build out my own project for a few weeks before I run out of money and have to get another contract.
If it's actually easy to get money? How would I find a VC who would be impressed by my actual technical ability as opposed to something like marketing or networking prowess? I tend to not spend a lot of time on making slick web pages and promoting myself but focus on implementing features.
Right now my own thing is a ChatGPT plugin that generates web pages including appropriate images using a template and stable diffusion. I am working on building in a CRUD system that GPT-4 will have concise docs for, as well as a user login system and an API proxy and secrets management. This way the system should be able to create fully functional websites.
The previous version integrates GPT-4 with fly.io VMs so that it directly executes commands in a loop to accomplish tasks.
But the plugin is on hold to work for some other startup so I can make rent and stuff. I am building out a simple generative fill inpainting/outpainting editor inspired by Playground.ai. Previously for this other startup I created a Dreambooth tool and a live editing scribble image generation thing with Controlnet.
And before that I was working on a Slack bot where you can ask it questions about PDF or other documents, and another that used GPT to write SQL for querying a specific table and optionally creating charts on the fly.
I guess I am just suspecting that maybe working on all of these other startups to pay the bills isn't necessary if I ask the right person for money. Which I never really seriously considered as an option.
Well.. I guess I have had the impression that people who get investments or grants are often better at convincing people to give them money than actually solving problems.
But can you elaborate on why you put it like that, "a bit of a charlatan"?
It's easy, but you have to wonder if it is really what you want. Your chances of seeing it through to the end are probably the same as every other start-up and taking VC money comes with a ton of strings attached.
Thanks for the link to the article. It's a great article. My interpretation of your response is that you would suggest I do not try to get any investment and rather continue to do the contracts, but otherwise following the specific advice on the "third road" from the article.
I think I have been ineffectually following something like the "third road" for ten years already. Although in my case maybe instead of a road up a stately mountain, it's more like getting lost in a ghetto, because I do not seem to progress beyond the low-paying contracts or get any significant interest in my startup attempts. Probably I have just gotten used to them.
It depends on a lot of factors. Personality, life goals, circumstances. I took on investment for a start-up at some point and ended up paying it all back because I realized I was headed straight for a burn out with all this pressure on me and it helped me a lot. And - controversially! - I ended up as a small time investor and LP at a bunch of funds and I do a lot of tech DD, which is still in the service of the VC world. It was quite a series of coincidences that led to that but the end result is that I'm pretty happy with how things turned out, even though several attempts to make this company independent of me have failed and I'm pretty much reconciled to running it at a lower level of ambition.
I'm curious whether AI aligns with startups. IMHO it does not well. It aligns with academia where time flow differently.
Business then takes what an academia produces -- i.e. papers / methods / algorithms and implements it to generate value for customers.
It doesn't align with startups as well in case if you have a method and require a lot of compute to produce a model -- you need capital for compute and that's not a typical garage startup.
I'm really curious whether there is any opportunity left for YC-sized startups in AI.
I lot of really cool developments happen on github -- but again that's open source, not ventures to generate money.
YC has a long tradition of soliciting applications in particular areas—see the links below. Of course, founders with other ideas are entirely welcome to apply.
Not sure if the Wayback Machine supports API-based on-demand archival, but they do partner with firms like Cloudflare to auto archive websites: https://archive.is/O9SAO
There's availability API but it won't tell us if the archived webpage does indeed display content (say, if it was behind a paywall or cookie banner): https://archive.org/help/wayback_api.php
> There's availability API but it won't tell us if the archived webpage does indeed display content (say, if it was behind a paywall or cookie banner
Right - that's the problem. It takes a human to tell if the archive link is worth anything.
I do want to do something better with this someday (someyear?) - most likely a way for community members to submit and vet archive links, and then (if so) an "archive" button in the detail bar to point to it.
Please don't take HN threads further into repetitive flamewar hell. Nothing interesting is going to come out of repeating this argument for the n-thousandth time. Worse, when discussions cease to be interesting, they turn nasty.
> The difference is crypto is useless and AI is useful.
Is that why Stripe, TicketMaster, Moneygram, Checkout.com, TransferGo, VISA, etc and many other companies continue to use it?
> That’s a pretty important difference.
Nope. The important difference is that crypto has energy efficient alternative methods of consensus available today such as proof-of-stake, byzantine fault tolerance (BFT), etc and even a former PoW blockchain (Ethereum) cut their emissions by 99.99% [0] by switching to a proof-of-stake consensus method. For crypto it is possible to switch to greener methods.
AI (Deep Learning) continues to destroy the planet since it has no efficient alternative methods available for training, fine-tuning and inference. This means their methods waste tons of resources, water and electricity. [1] [2]
It is a serious issue in the field after decades of its existence all to produce unexplainable black-box AI models which cannot reason and have to be retrained, fine-tuned again once it gets confused by a single pixel or regurgitates nonsense output.
The AI hype is another grift that the VCs are taking advantage of just like they did with thousands of crypto companies. The reality is, 90% of these AI / crypto companies will fail and the remaining 10% will still be around that are useful.
It is being used and businesses are using it in their products today.
Companies like Moneygram would not use Stellar if it was useless for them and their customers and would instead announce that they are shutting it down after trialling it. They seem to have seen utility in it for their use-case. The same can be said for the other companies I mentioned.
> Companies like Moneygram would not use Stellar if it was useless for them
Useless, not worthless. I happen to be familiar with that case. It’s great for sales. Useless for performance. (It might become useful one day.) Hence, marginal-enough adoption and a lot of marketing.
A couple years ago I counselled a friend in banking to do something with Ripple. It helped him win deals with crypto firms, and likely helped their wealth managers, too. Worthful. But useless.
> Useless, not worthless. I happen to be familiar with that case. It’s great for sales. Useless for performance. (It might become useful one day.) Hence, marginal-enough adoption and a lot of marketing.
Nope. Useful today for people using Moneygram worldwide (In the example I gave). Moneygram used Stellar for their own use-case and its customers use it today for that same utility, but this time with no bank accounts for the end user.
> A couple years ago I counselled a friend in banking to do something with Ripple. It helped him win deals with crypto firms, and likely helped their wealth managers, too. Worthful. But useless.
Now with Stellar today, it is used by many businesses like Moneygram, and aid programmes [0] are trailing the network [1] for the same use-case. Again, it would not be used by such organizations or even trailed or piloted in the first place if it was 'Useless for performance.' or had no utility.
> but this time with no bank accounts for the end user
Moneygram originated with cash or money order in, cash or money order out. No bank account needed.
> with Stellar today, it is used by many businesses like Moneygram, and aid programmes
You’re linking to a pilot. As it happens, I also worked with UNDP years ago. We similarly launched pilots to try and find uses for novel technologies. (Mine was in mobility data from cell phones.)
That’s what’s happening here. They are looking for a use. That should be encouraged. Looking for something doesn’t mean it is found.
> Moneygram originated with cash or money order in, cash or money order out. No bank account needed.
Even better, meaning that the smart decision was to add another rails (crypto) which after choosing something like Stellar and trailing it, they found it was useful for them and their customers, to continue using it. Otherwise it would have been scrapped years ago.
> That’s what’s happening here. They are looking for a use. That should be encouraged. Looking for something doesn’t mean it is found.
Indeed, it is a pilot which means more interest in the use-case which was found AFTER Moneygram trialled it and are using it right now today.
The same is said about the other companies I mentioned. Far from the first broad claim of it all being 'useless' which we all know that is blatantly false.
> they found it was useful for them and their customers, to continue using it. Otherwise it would have been scrapped years ago
You’re not seeing how something performative can be both profitable and useless?
Maybe it's semantic. I'm not saying crypto is useless as a moral judgement. The bumblebee keychain on my backpack is functionally useless. But I like it, so it's worth something to me. But it has never carried a key, it never well, and its artistic value is objectively passable as best. It's useless but with worth.
If we say MoneyGram's crypto integrations are useful as marketing, I'll agree. But again, as someone familiar with that particular example more than most, if those customers would have given business for money stained with mayo, MoneyGram would be slathering it on.
> You’re not seeing how something performative can be both profitable and useless?
Moneygram and their customers with other organizations using the Stellar network is not performative. It exists and works today, right now and it was that 'something' that was used, tried and tested first before making a decision and it turns out that the use-case was valid for them (and many others).
Henceforth, it is not 'useless' going by the OP's original broad claim.
> Maybe it's semantic. I'm not saying crypto is useless as a moral judgement. The bumblebee keychain on my backpack is functionally useless...
Again, the main use of the Stellar network was serious enough for MoneyGram which out of the thousands of other alternatives used to get on another rails (crypto) for their worldwide customers after assessing that use-case.
But you've only made it clear that to you it is "useless" and no user or business would even bother to use it, if it was found to be as such in the first place.
I would expect the failure rate of AI startups to be ~ equal to the failure rate of all start-ups. AI isn't something magical that will cause your startup to have better chances in the marketplace, all of the other caveats still apply (timing, luck, execution).
So lets say between 1 and 10% of AI companies will survive and between 1 and 3% will be home-runs.
> Difference is that 100% of the Crypto companies will fail.
You do realize what you just said is complete absolutist nonsense?
> and 90% of AI companies will thrive.
I think you know that this is also nonsense and you have really confirmed that we are indeed in another AI bubble. A hype cycle reinforced by VC capital inflating expectations once again.
The reality is this: 10% of these AI companies will thrive with the remaining 90% shutting down.
The major gatekeepers (OpenAI, Google, Meta) who own the AI models and the heavily VC backed ones are part of that 10%. The 90% of late comers and pre-revenue copycats are climbing an uphill battle which will end in a merger or mostly them end up shutting down as their credits and VC capital being depleted after generating little to no revenue for years.
A great opportunity to sell then during the rush in capital from the VCs throwing money at any company filled with AI buzzwords before it all collapses.
I have been working on the same idea since the 90's. I find humorous that I could describe the idea I have been working on, using the buzzwords of every funding excitement of wave.
YC.org literally backed OpenAI in 2015, Cruise a year before that, and ScaleAI a year after that.
Per YC's publicly available records, the earliest they funded a ML/AI business was in 2008. They aren't late, but this AI specific Early Decision may be in reaction to funds like AIGrant.org, SouthParkCommons, Neo et al.
Exactly, the chances of getting funding for AI companies are up considerably and if YC doesn't fund them someone else will. To get a seat at the table they need to move faster compared to their normal schedule.
Every time there is a major shift in tech you see this pattern repeat but I don't recall seeing it on that scale again since ~2000, even though lots of stuff has happened since then (for instance: the mobile revolution).
Investing in AI for the sake of companies using AI because it increases their chances of funding is the hallmark of a bubble, and that will probably end the same way it did before. But if you manage to pick the winners early it will pay off in spades. The big question to me is whether or not those winners will be part of the first wave or the second, usually it takes a while before a new technology really comes into its strength.
Until then there is a pretty big risk that what looks to be an early winner will be displaced by a party from the second wave which is better positioned to take advantage of later, more mature versions of that technology, which by then may well be able to displace those 'early winners' by a couple of guys with an open source package.
Not an easy time to be an investor.