Evening Brief – 11.16.23
The Next Wave of AI Innovation
Menlo Ventures, a CA-based venture capital firm, released a report which details current generative AI adoption and makes projections for where the next flurry of AI innovation will happen.
According to The State of Generative AI in the Enterprise report, based on a survey of over 450 enterprise executives, investment in generative AI is still small, totaling $2.5 billion this year–significantly less than the $70 billion invested in traditional AI and the $400 billion spent on cloud software.
Simultaneously, figures reveal that the number of organizations utilizing AI expanded by 7% in 2023, with AI spending increasing by 8% and cutting into total corporate tech spending, which only increased by 5%.
Currently, incumbents receive the majority of this spending. The report describes how “Big Tech” businesses and category leaders mobilized and captured a substantial chunk of the market by exploiting advantages in brand, scale, budget, and engineering resources to integrate AI capabilities into established products. As a result, incumbents already hold a $1.2 billion market share, leaving little room for rivals to gain traction.
To break into the enterprise market, AI solutions must demonstrate huge productivity improvements, replace outmoded approaches, and rewrite routines in ways that feel wholly new and drastically different.
The report suggests three areas with tremendous potential for startup success:
Vertical AI: The marketing and legal industries are currently at the forefront of vertical generative AI deployment. AI will revolutionize human-machine collaboration in industry-specific applications, becoming the driver for end-to-end automation rather than just a copilot or collaboration platform.
Horizontal AI: Horizontal solutions are popular because they can be used for multiple industries and departments, enhancing workflow efficiency beyond what was previously feasible. As AI becomes more capable of reasoning, collaborating, communicating, learning, and predicting, next-generation workflow tools will not only allow machines to augment or automate routine tasks, but will also take on work that only humans could previously do, using advanced approaches such as agents and multi-step reasoning.
The modern AI stack: New generative capabilities necessitate the development of new tools for developing LLM apps, such as databases, service infrastructure, data orchestration, and pipelines. Despite being a “work in progress,” the modern AI stack attracts the majority of enterprise AI investment, making it the largest new market in the generative AI area and an appealing focus for startups.