Introduction of new mass production techniques often has an initial wave of high profit when early adopters have an initial advantage... existing workers are more efficient... but this will followed by a long term decline in the rate of profit as margins aggressively fall ...
e.g. if every software company uses AI to double its coding speed, the price of software will eventually drop by half.
As "AI" becomes a required and common commodity input, competition will drive prices down until the productivity gains are entirely captured by customers, leading to margin compression across the sector.
Also... firms will be forced to invest in using AI just to stay in the same place. If you don't adopt it aggressively, you'll be priced out; if you do, your margins still shrink because everyone else did too.
So... yeah, I don't think this is the next part of a "digital wave" if that means giant increase in new startup investments and SaaS companies etc, it's actually probably the start of I think a margin collapse and consolidation in our industry.
If it's 2x easier to build e.g. a CRM, we’ll end up with 10x more CRMs, leading to a "race to the bottom" on pricing.
The last 15 years of investment by people like YC etc seems to have been in businesses that were "like Uber but for <X>". Service businesses on which a small layer of software automated things, and drove some sort of explosion of customers. I don't really see how VCs are going to separate wheat from chaff on this front anymore? If anybody can do it.... what's the value of any particular approach over the others? I'd think the result would be consolidation?
So I suppose if you're selling "the means of production" in the form of GPUs you're in a good spot, but even that is likely to be subject to aggressive downward pricing.
Introduction of new mass production techniques often has an initial wave of high profit when early adopters have an initial advantage... existing workers are more efficient... but this will followed by a long term decline in the rate of profit as margins aggressively fall ...
e.g. if every software company uses AI to double its coding speed, the price of software will eventually drop by half.
As "AI" becomes a required and common commodity input, competition will drive prices down until the productivity gains are entirely captured by customers, leading to margin compression across the sector.
Also... firms will be forced to invest in using AI just to stay in the same place. If you don't adopt it aggressively, you'll be priced out; if you do, your margins still shrink because everyone else did too.
So... yeah, I don't think this is the next part of a "digital wave" if that means giant increase in new startup investments and SaaS companies etc, it's actually probably the start of I think a margin collapse and consolidation in our industry.
If it's 2x easier to build e.g. a CRM, we’ll end up with 10x more CRMs, leading to a "race to the bottom" on pricing.
The last 15 years of investment by people like YC etc seems to have been in businesses that were "like Uber but for <X>". Service businesses on which a small layer of software automated things, and drove some sort of explosion of customers. I don't really see how VCs are going to separate wheat from chaff on this front anymore? If anybody can do it.... what's the value of any particular approach over the others? I'd think the result would be consolidation?
So I suppose if you're selling "the means of production" in the form of GPUs you're in a good spot, but even that is likely to be subject to aggressive downward pricing.