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001 - The business model of AI
Description
Hosts: Andy and Pete (recorded at City Beach, Perth)
Episode Overview: The inaugural episode explores how AI will transform business models, where value will accrue, and strategic approaches for businesses adapting to AI.
Key Discussion Points:
Value Shift in AI: The hosts argue that value in AI won't primarily accrue to companies like OpenAI but to traditional service businesses that leverage AI to transform their operations.
Transformation of Traditional Businesses: Businesses with language-heavy workflows and high human labor costs can use AI to shift the "unit of intelligence" from humans to scalable AI systems, potentially achieving software-style margins.
Hyper-Localization: Pete predicts a future where power and control shift to small businesses that can leverage commodity intelligence, rather than large centralized players.
SaaS Evolution: Discussion about whether SaaS business models will decline as AI enables more custom-built solutions specific to individual business needs, reducing dependency on one-size-fits-all platforms.
App Players vs. Agentic Workflows: The hosts debate whether there will be an "app player renaissance" or if agentic workflows will eliminate the need for traditional application interfaces.
First Principles Thinking: Businesses need to reimagine their processes from first principles rather than simply adding AI tools to existing workflows.
Human Role Transformation: A key insight is the shift of humans from being central to business processes to working "at the edge" - where humans become interfaces with the real world while AI handles core processes.
The Value Trap: Andy and Pete introduce the concept of the "value trap" - where initial AI efficiency gains create massive value, but competition eventually erodes pricing power, potentially creating challenging transitions.
Transformation Strategies: Discussion of whether businesses should create "digital twins" (like Netflix did when moving from DVDs to streaming) or transform their existing operations.
- Capital Allocation Opportunity: Private equity and venture capital firms are already raising funds to acquire businesses specifically to implement AI transformation strategies.
- Looking Ahead: The hosts tease a deeper discussion of the "value trap" concept for episode two, promising to show listeners how to navigate this transitional period.
- Closing Thought: "We spent the last two decades searching for product market fit, and it turned out the valuable thing was just to stick with the companies that already had it."