Three years after the generative AI boom began, most AI startups are making money by selling to businesses, not individual consumers.
While consumers have quickly adopted general-purpose LLMs like ChatGPT, most specialized consumer GenAI applications have yet to resonate.
“A lot of the early AI applications around video, audio and photos were great,” said Chi-Hua Chien, co-founder and managing partner at Goodwater Capital, on stage at TechCrunch’s StrictlyVC event in early December. “But then Sora and Nano Banana came out, and the Chinese open-sourced their video models. And so, a lot of those opportunities disappeared.”
Chien compares some of those applications to the simple Flashlight, which was initially a popular third-party download after the iPhone launched in 2008 but was quickly integrated into iOS.
He argued that, just as smartphone platforms took years to solidify before game-changing consumer apps emerged, AI platforms needed a similar period of “stabilization” to develop long-lasting AI consumer products.
“I think we’re at the peak of the mobile equivalent of the 2009-2010 era,” Chien said. That period was the birth of huge mobile-first consumer businesses like Uber and Airbnb.
We’re seeing glimpses of that stability with Google’s Gemini ChatGPT achieving technical parity, Chien said.
VCs discuss why most consumer AI
Elizabeth Weil, founder and partner at Scribble Ventures, echoed Chien’s sentiments about GenAI’s early days, describing the current state of consumer AI applications as an “awkward teenage middle ground.
What will it take for consumer AI startups to scale? Perhaps a new device beyond smartphones.
It’s unlikely that a device that you pick up 500 times a day but only see 3% to 5% of what you see will eventually introduce a use case that takes full advantage of AI’s capabilities,” Chien said.
Weil agreed that a smartphone may be too limiting to reinvent consumer AI products in large part because it isn’t immersive. “I don’t think we’re going to make it in five years,” he said, gesturing to his iPhone as he showed it to the audience.
Startups and incumbent tech companies are racing to create a new personal device that can replace smartphones.
OpenAI and Apple’s former design chief, Jony Ive, is working on what is rumored to be a “screenless” pocket-sized device. Meta’s Ray-Ban smart glasses are controlled by a wristband that detects subtle gestures. Meanwhile, several startups are trying, often with disappointing results, to launch a pin, pendant or ring that uses AI differently than a smartphone.
However, not every AI consumer product will be dependent on a new device. Chien suggested that one such offering could be a personal AI financial advisor that can be customized to a user’s specific needs. Similarly, Weil predicts that a personalized, “always on” tutor will become ubiquitous, with specialized tutelage delivered directly from a smartphone.
Although excited by the potential of AI, Weil and Chien expressed skepticism about the emergence of several, well-established AI-powered social network startups. Chien said these companies are building networks where thousands of AI bots interact with user content.
It turns social into a single-player game. I’m not sure it works,” he said. “The reason people enjoy social networking is to understand that there are real people on the other side.”