Specialization Will Drive Category Expansion in Applied AI

Today, the market for software applications that enable commerce is highly specialized. Within Grit Capital Partners, our team has played a role in developing agent-based ad-decisioning, and the first probabilistic model for measuring retail media.

These products launched where entrepreneurs applied deep knowledge of the consumer market and early advances in analytical AI to create an advantage for customers.

But it’s worth remembering that the categories of commerce weren’t always this differentiated.

In the 1990s, Amazon helped to cement the internet as a channel for buying and selling goods. At that point, the solution crossed a range of industries, including retail, CPG, logistics, and delivery.

Each developed new capabilities as a result, leading companies to create new categories by offering sector specific solutions built on the cloud. Brands needed different solutions from retailers to achieve success in this channel, creating space for a range of platforms to operate commerce across digital channels.

Later, companies emerged to serve segments of those e-commerce operations, such as marketing, where workflow creation allowed companies to optimize across marketplaces and social channels.

With the opportunity to dig in, marketing leaders uncovered the edge to be found channel-by-channel, and increasingly specific marketing tools unlocked new value by supporting distinct levels of the marketing stack, such as media buying, content generation, and measurement.

Specialization Creates New Companies and Categories

As entrepreneurs went deeper, they leveraged new advances in compute and distribution that were available as technology progressed through the cloud, mobile, and social eras.

In each era, specialization drove the creation of new categories at the application layer, with more companies formed in each generation, driving increased multiples of value.

Today, a new era is dawning, as the rapid advance of AI has resulted in meaningful advances at the chip and technology layer that will present new opportunities in Applied AI. Commerce is just one of the industries that stands to be disrupted. Once again, sector experts who mastered the technology of the last generation will harness advances in compute power to create new levels of value.

Yet AI represents an opportunity that is even larger.

Harnessing a convergence of analytical and generative capabilities, Applied AI is poised to transform not only the tools we use, but also shift the human’s relationship to the completion of knowledge work. In the enterprise segment alone, our friends at Bessemer Venture Partners predict that AI applications will be at least 10x the size of legacy SaaS. 

Specialization will lead to the creation of even more new companies than past generations. It will also unlock new categories that were previously considered beyond the reach of tools in the SaaS era.

AI Will Drive Automation at the Task Level

Specialization leads to specific workflow lock-in, as sector-focused solutions become position and role-based solutions. These sticky workflows have added productivity gains in past cycles. Enabled by digital transformation across organizations, earlier advances in analytical AI harnessed data and predictive capabilities to guide work. This drove gains in human performance, as workers were able to more efficiently perform existing roles, and communication was disaggregated from location and presence.

In the AI era, the combination of generative and analytical capabilities will drive a revolutionary increase in the augmentation of human capabilities, and workflow automation. Rather than enabling humans to complete tasks better and faster, humans will delegate tasks to AI applications altogether, and, with increased training, the AI applications will complete more work at high quality than humans ever could. Past eras of advancement leveraged technology to organize and guide humans. AI’s ability to operate autonomously will create tools that can not only navigate complex workflows on their own, but also solve problems and develop new ideas. Already, AI is proving to be more adept in attributes associated with creative thought and reasoning.‍

The impact will be massive. As much as 60-70% of knowledge work activity is set to be subsumed by generative AI, according to McKinsey. In all, half of work activities could be automated between 2030 and 2060, the firm states.

Technology’s impact will shift from the role-based level to the task-based level. This will change who does what, how organizations are structured, and what role there is for the associate-level human, whether on a factory floor, software development shop, or law firm. While the opportunities are broad, the use cases will grow more specific than past eras. The companies that create and redefine categories will draw an advantage from data that is specific to the industry and the organization, and a willingness to reimagine workflows with both humans and AI tools as fully equipped to get the job done. Solving problems at the task-based level will require a deep understanding of the individual functions of an organization.

Increased Specialization Requires Specialist Investors

As technology pushes deeper, the teams that build technology will require new levels of specialization. In the cloud era, passionate entrepreneurs were able to harness advances in cloud compute to drive excitement about the adoption of new technology in an organization, and results. In the AI era, domain expertise, access to differentiated data to train models, and AI engineering talent to build products are all required. This requires building relationships and forging connections between entrepreneurs, incumbents, and engineering talent, and the ability to connect and coordinate each of these components will be critical.

The advantages can be accelerated by a new kind of venture firm.

At Grit Capital Partners, our team has actively deployed and developed AI. We built market-making companies in the industries that will be disrupted first and repeatedly, including commerce, media, martech, and fintech.  

Our long view of these industries and experience with early forms of this technology makes us no less excited about the potential created by AI; in fact, it is exactly the source of our exuberance. With deep domain knowledge and an obsession with value creation, specialization provides the benefit of being able to envision the future before it occurs. Those who saw how the internet enabled interaction and commerce could sense that marketplaces would form to aggregate value. With this in mind, they could evaluate new technologies and entrepreneurs with what was possible.

Our role in creating the industries where we focus gives us a clear view that Applied AI will disrupt transactions and experiences. It is through that lens where we have a deep understanding of the market that allows us to evaluate entrepreneurs, positioning to meet extraordinary founders that we will support constantly, and a network to connect companies to partners and talent.

We’re just as comfortable spending time whiteboarding with entrepreneurs as we are in a corporate boardroom, and we pride ourselves on our ability to connect across these worlds.

With our longtime role as conveners, we will serve as a bridge between incumbents and next-generation AI companies by making introductions to leaders and strategic partners, providing not only early customers but also access to data that is needed to train models.

When pioneering entrepreneurs employ technology to create new use cases, industry disruption follows. When they are supported by investors with deep experience in that domain, new categories are formed. It is at this nexus where value creation happens.

Today, we are standing at the beginning of a 100-year tech transformation, and we are positioned to lead. As Founder CEOs, it’s in our nature to believe that we can accelerate that cycle, and unlock more value than expected. We do that by working step-by-step with Applied AI pioneers to shape the next, and largest, era of tech transformation.