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Having briefly worked for an AI company, I agree with the conclusion that AI companies are more like services businesses than software companies. I would add on

Having briefly worked for an AI company, I agree with the conclusion that AI companies are more like services businesses than software companies. I would add only one other thing: to me going forward there likely won't be "AI companies" - AI exists to power applications. And in my experience, unless the output is truly differentiated, customers aren't willing to spend more for something "powered by AI" - they just expect that software has evolved to provide the kind of insights that AI sometimes deliver.

mapgrep 7y ago
Aren’t software businesses increasingly like service businesses though? They deliver now often with backend cloud storage, update near continuously, integrate frequently with outside services, sometimes open source major components iteratively, typically have an evolving API and developer ecosystem to educate, and are sold as subscriptions. It’s not as “human in the loop” as some of the AI described in this article but it’s clearly moving toward services in terms of margins. Nothing is like the old shrink wrapped software business, basically.
- inthewoods 7y ago
  Not from what I see - what I see is software companies using services as a way to shorten time-to-value for the customer. They do this either themselves or via professional services firms. To me, the services you describe are software-as-a-service - they scale well without adding more humans to the mix. Services businesses, in contrast, generally need more humans to do more work. I do think you are right that we are entering an age where the margin pressures will continue to increase. As the Amazon quote goes "your margin is my opportunity." In that world, strength accrues to the largest players - which is why AWS is so strong. I like to joke that AWS should refund money to the startup that buy booths at re:Invent only to find out AWS is rolling out a competing service (with the acknowledgement that AWS entering a space doesn't necessarily mean the end of the competing company.)
shoo 7y ago
For an example of a genuine software company vaguely in this ecosystem, consider companies that build the tools that some AI/ML/optimisation systems use as building blocks. Eg optimisation algorithms. If you need to solve gnarly industrial scale mixed integer combinatorial optimisation problems in the guts of your ML / optimisation engine, the commercial MIP solvers (gurobi , CPLEX ) or non-MIP based alternative combinatorial optimisation systems (localsolver ) can often give more optimal results in exponentially less running time than free open source alternatives. 1% more optimal solutions might translate into 1% more net profit for the entire org if you've gone whole hog and are trying to systematically profit optimise the entire business, so depending on the scale of the org it might be an easy business case to invest a few million dollars to set this system in place. Annual server licenses for this commerical MIP solver software was 0(100k) / yr per server & the companies that build these products bake a lot of clever tricks from academia into these products that you can exploit by paying the license fee. ( my knowledge of pricing is out of date by about 7 years ) .
- MrK93 7y ago
  I'm all for linear optimization and other optimization techniques. It's refreshing to see other people talk about Gurobi, CPLEX, etc... Having done research in the field of scheduling and now getting contacted by companies, it's demoralizing to see that everybody usually speaks about machine learning while many problems can be solved in a more precise way with other techniques.

mapgrep 7y ago

Aren’t software businesses increasingly like service businesses though? They deliver now often with backend cloud storage, update near continuously, integrate frequently with outside services, sometimes open source major components iteratively, typically have an evolving API and developer ecosystem to educate, and are sold as subscriptions. It’s not as “human in the loop” as some of the AI described in this article but it’s clearly moving toward services in terms of margins. Nothing is like the old shrink wrapped software business, basically.

inthewoods 7y ago
Not from what I see - what I see is software companies using services as a way to shorten time-to-value for the customer. They do this either themselves or via professional services firms. To me, the services you describe are software-as-a-service - they scale well without adding more humans to the mix. Services businesses, in contrast, generally need more humans to do more work. I do think you are right that we are entering an age where the margin pressures will continue to increase. As the Amazon quote goes "your margin is my opportunity." In that world, strength accrues to the largest players - which is why AWS is so strong. I like to joke that AWS should refund money to the startup that buy booths at re:Invent only to find out AWS is rolling out a competing service (with the acknowledgement that AWS entering a space doesn't necessarily mean the end of the competing company.)

shoo 7y ago

For an example of a genuine software company vaguely in this ecosystem, consider companies that build the tools that some AI/ML/optimisation systems use as building blocks. Eg optimisation algorithms. If you need to solve gnarly industrial scale mixed integer combinatorial optimisation problems in the guts of your ML / optimisation engine, the commercial MIP solvers (gurobi , CPLEX ) or non-MIP based alternative combinatorial optimisation systems (localsolver ) can often give more optimal results in exponentially less running time than free open source alternatives. 1% more optimal solutions might translate into 1% more net profit for the entire org if you've gone whole hog and are trying to systematically profit optimise the entire business, so depending on the scale of the org it might be an easy business case to invest a few million dollars to set this system in place. Annual server licenses for this commerical MIP solver software was 0(100k) / yr per server & the companies that build these products bake a lot of clever tricks from academia into these products that you can exploit by paying the license fee. ( my knowledge of pricing is out of date by about 7 years ) .

MrK93 7y ago
I'm all for linear optimization and other optimization techniques. It's refreshing to see other people talk about Gurobi, CPLEX, etc... Having done research in the field of scheduling and now getting contacted by companies, it's demoralizing to see that everybody usually speaks about machine learning while many problems can be solved in a more precise way with other techniques.