Even three years into the AI boom, most AI startups still make money by selling to businesses, not individual consumers.
Although consumers have quickly adopted general-purpose LLMs like ChatGPT, most consumer-grade GenAI applications have yet to resonate.
“A lot of the early AI applications around video, audio, and images were pretty cool,” Chi-Hua Chen, co-founder and managing partner at Goodwater Capital, said on stage at TechCrunch’s StrictlyVC event in early December. “But then Sora and Nano Banana came along, and the Chinese company relied on its own video models. So, a lot of those opportunities disappeared.”
Shen compares some of these apps to the simple flashlight, which was initially a popular third-party download after the iPhone launched in 2008, but was quickly integrated into iOS itself.
Just as it takes a few years for the smartphone platform to consolidate before game-changing consumer apps emerge, AI platforms need a similar period of “stabilization” for durable consumer AI products to flourish, he said.
“I think we’re on the cusp of the 2009-2010 era mobile phone equivalent,” Shen said. This period marked the birth of huge mobile-first consumer companies such as Uber and Airbnb.
“We may see signs of this stabilization as Google’s Gemini reaches technological parity with ChatGPT,” Chen said.
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Elizabeth Weil, founder and partner at Scribble Ventures, echoed Chen’s sentiments about the early days of GenAI, describing the current state of consumer AI applications as being in an “awkward teenage compromise.”
What does it take for consumer AI startups to grow? Maybe a new device beyond the smartphone.
“A device that you pick up 500 times a day but only sees 3% to 5% of what you see is unlikely to be what ultimately delivers use cases that fully leverage AI capabilities,” Chen said.
Weil agreed that a smartphone may be too limiting to reimagine consumer AI products largely because it’s not ambient. “I don’t think we’ll be building this in five years,” she said, pointing to her iPhone as she demonstrated it to the audience.
Startups and incumbent technology companies are racing to build a new personal device that can replace smartphones.
OpenAI and former Apple design chief Jony Ive are working on what is rumored to be a pocket-sized “screenless” device. Meta’s Ray-Ban smart glasses are controlled by a wristband that detects subtle gestures. Meanwhile, a number of startups are trying, with often disappointing results, to introduce a pin, pendant or ring that uses artificial intelligence in a way different from the way smartphones work.
However, not every AI-driven consumer product will rely on a new device. One such offering could be an AI-powered personal financial advisor customized to meet a user’s specific needs, Shen suggested. Likewise, Weil expects the “always-on” personal tutor to become ubiquitous, with expert tutelage delivered directly from a smartphone.
Although excited about the potential of AI, Weil and Chen expressed skepticism about the emergence of many AI-powered social networking startups that remain hidden. These companies are building networks where thousands of AI bots interact with user content, Shen said.
“It turns social media into a single-player game,” he said. “I’m not sure it will work.” “The reason people enjoy social media is because they realize there are real human beings on the other side.”
