VCs Reveal Why Consumer AI Startups Struggle to Last

At a recent TechCrunch event, venture capitalists (VCs) discussed the challenges facing consumer artificial intelligence (AI) startups, highlighting the difficulties in creating lasting products that resonate with individual consumers. According to Chi-Hua Chien, co-founder and managing partner at Goodwater Capital, most AI startups are still making money by selling to businesses, rather than consumers. This trend persists even three years after the generative AI boom began. Chien pointed out that while consumers quickly adopted general-purpose large language models (LLMs) like ChatGPT, specialized consumer generative AI (GenAI) applications have yet to gain traction. He cited the example of early AI applications in video, audio, and photo, which were initially popular but ultimately lost momentum when Chinese companies like Sora and Nano Banana open-sourced their video models. This development eliminated opportunities for those applications, much like how the iPhone's built-in flashlight feature eventually replaced third-party downloads. Chien drew parallels between the current AI landscape and the early days of the smartphone platform. He noted that it took several years for the platform to solidify before game-changing consumer apps emerged. Similarly, Chien believes that AI platforms need a similar period of stabilization for lasting AI consumer products to flourish. "I think we're right on the cusp of the equivalent to mobile of the 2009-2010 era," Chien said, referencing the birth of massive mobile-first applications. The current state of consumer AI startups is a result of the rapid evolution of AI technology, which has led to a proliferation of new applications and services. However, this has also created a competitive landscape where many companies struggle to differentiate themselves and achieve lasting success. As Chien noted, the smartphone platform took several years to mature before it became a fertile ground for innovative apps. Industry experts agree that the current challenges facing consumer AI startups are not unique to the AI space. "The history of technology is full of examples where early adopters are often followed by a flood of me-too products that fail to gain traction," said a tech industry analyst, who wished to remain anonymous. "It's not uncommon for the market to consolidate and for only a few players to emerge as leaders." Despite the challenges, many experts believe that the long-term potential of consumer AI startups remains significant. As AI technology continues to advance, the possibilities for innovative applications and services will only grow. "We're just at the beginning of this journey, and I'm excited to see what the future holds," Chien said. The current status of consumer AI startups is a topic of ongoing discussion in the tech industry. As the market continues to evolve, it will be interesting to see which companies will emerge as leaders and which applications will gain lasting traction with consumers.