Generative AI is now the big thing
Generative AI is now the big thing within tech and startup companies, especially in Silicon Valley, which is making comparisons to the gold rush of 1849. We have already seen many clichés about this, but let’s dig deeper, especially because we cannot avoid these metaphors. The reality is much more complex.
Few diggers got rich during the California gold rush
History tells how only a few diggers got rich during the California gold rush, but there were several successful companies that started their business by selling items and services to people who were looking for gold. Wells Fargo, Levi Strauss, and Ghirardelli are often mentioned as classical examples.
Selling shovels and jeans
Then we have the shovel story. There were also those guys who were selling shovels to gold diggers. For today’s comparisons, Nvidia would be the shovel store in the era of AI. There are also other hardware vendors that we can compare to the shovel business. These are the huge funding deals where a big part of the money goes to buy and build hardware to train AI models.
I have seen these comparisons many times, usually when something new is coming in mobile data, social media, mobile apps, blockchain and cryptos. However, we should analyze this a little more than simply sharing these cliches on LinkedIn posts to show how smart we are.
Has it really worked with previous disruptive technologies?
Let’s take some examples from previous disruptive technologies:
Mobile data arrived with 3G 20 years ago. We could say carriers were the ones in the position to sell shovels. How did it go? Did they make big money and succeed? Not really; it was almost the opposite. The data-enabled services happened outside the network, and the carriers became bit pipes. And they still struggle in that position. The winners have been all services that could offer their services on mobile.
Social media. It is hard to say who were the parties to sell shovels and jeans for that business, but at least server vendors and data connection providers could be likely candidates. A lot of servers have been sold to social media services, and users have used a lot of data. Did it make server vendors and data connection providers rich? Not really. The winners are a few social media platforms that were the gold diggers in that business. And it also opened a new business to be an influencer on social media.
Mobile apps. In this case, the big winners were Apple, and Google in another way (e.g. how much data it gets from Android and mobile apps). But there have also been very successful apps (e.g. games) and many others that have earned reasonable money, although the majority of the apps haven’t been financially profitable. But apps have also enabled many businesses to offer their services on mobile. In this case, it is difficult to say who shovel stores or gold diggers are. Maybe Apple and Google were enablers, and they have done good business with this, especially because it has also helped to sell many more phones.
Blockchain and cryptos. Just now, it is really hard to say who are winners in blockchain. We still thought crypto exchanges were a good business a year ago, but that dream has collapsed since then. There have probably been a few gold diggers that have made good money by selling their cryptos and then disappearing. Of course, processor and server vendors have made money, too, as did electricity suppliers. But we cannot say it would have changed their business fundamentally. It has been more like temporary extra revenue.
It’s not so simple
Those are just some high-level examples. It is difficult to determine who finds pieces of gold, who sells tools and who creates new infrastructure when many people come to a new area.
Those examples illustrate whether there is any significant wisdom really in the shovel or jeans story. It sounds more like there are many new opportunities to make money during the time when a new ecosystem is built. Sometimes, it enables new companies to make a breakthrough, but quite often, it is just some extra revenue for existing players.
Not only money but the positioning
The question is not only about money but who can really achieve a new significant position? For example, Levi Strauss and Wells Fargo were able to come to the market during the gold rush. Apple and Google have been able to establish their position in the mobile ecosystem with app stores. But server vendors, carriers and electricity companies haven’t been able to change their position or add value, although they have seen extra revenue from those booms.
What can we expect with the emerging AI activities? Do we really believe Nvidia can change its position? Maybe it can become a more important processor company, but it is still hard to see if this would fundamentally change its market position. Or could those companies that can train the best AI models be the winners? Probably not, because others can probably adapt those models, and it becomes faster and easier to train them all the time.
Unique data and user experience are often mentioned as the assets to win the market with new AI. How are those aspects if we try to compare them to the gold rush? Is it like who owns land and mining rights where there is gold and who offered really nice and easy-to-use products? And who can offer something unique that others cannot? It is not just to sell shovels, but whether you are the only one to sell the right type of shovels.
Unique data is one success factor. And all internet data is not really unique. Basically, anyone can get it if they buy enough servers. Social media data that has been important for advertisers is not so relevant in making useful AI tools. Companies that have their own business data should be able to utilize it better, and people have their own personal data.
However, a significant part of data from personal life is not collected yet, but sensorization, smart homes, IoT and user-held data models offer totally new opportunities in that area. Most probably, no single company is able to collect all useful information from an individual’s life, at least in Western countries, that really enables powerful personal AI. It is not only who has the data or can get it, but who has the right to use it.
User experience was probably an important part of the gold rush success stories. People needed convenient trousers for their mining work, they wanted to have a bank with branches near them, and they needed a shovel store near the mining area. UX is maybe one aspect that is often ignored when we think of the gold rush lessons.
Who did the gold rush profit most?
And who then profited most from the gold rush? The answer most sources offer is Samuel Brannan. Did he look for gold, sell shovels or do something else? Actually, he did a lot of things. He sold shovels, but he was able to be the only one to sell shovels and pans in the area. Besides, he also owned a newspaper, bought a lot of land, and built a railway and shipping business. He was also working for the Mormon church, establishing a Mormon presence in the San Francisco area and even bringing the first non-Catholic wedding ceremonies there. So, if you want to learn from his activities, it is quite simplified to say he sold shovels. He had an active role in setting up the whole ecosystem and was also very quick to utilize new opportunities when the market developed.