Digital Dreams versus Reality. The Future of AI Startups

Could you predict the future of your business? Who can guarantee it? Someone will say – econometric analysis. Another – trend analysis. 

Dotcom Crisis

The dot-com crisis, the internet bubble, is an economic phenomenon that occurred mainly between 1997 and 2001. During this period, many internet companies experienced rapid rises and falls. A company with “.com” was perceived as modern and innovative, attracting giant investments from investors looking for quick profits in the burgeoning internet technology market. The bubble grew because investors pumped capital into internet startups that often had no developed business model or natural sources of revenue. The value of these companies’ stocks rose spectacularly, especially on NASDAQ, further fueling interest and attracting even more capital. The bubble peaked between 1999 and 2000 when investors began to realize that many of these companies would not achieve the expected financial results. This disappointment led to a massive selloff of stocks, causing their value to plummet. Many investors lost substantial sums of money, and many dot-com companies failed or were significantly restructured.

Do we have an AI-com bubble today? Technology companies are fascinated with the development of artificial intelligence. Is it time to speak louder about it?

According to the Wall Street Journal, investments in startups dealing with artificial intelligence are rising. Last year, investors put over $20 billion into deals related to generative AI. However, some of these companies, valued at billions of dollars, are not profitable or do not have a product. Moreover, the problematic phenomenon is the use of AI for generating fraud, a recent victim of which was Rafał Brzoska. No mainstream media have taken up this topic, and the problem is getting more serious.

Market Economy

Despite the lack of products, investors are willing to allocate funds to newly emerging companies led by research teams or experienced entrepreneurs from Silicon Valley. Such an investment strategy can be risky, as there is no guarantee that these companies will achieve commercial success. Meanwhile, over the past quarter-century, many studies have indicated that one of the main issues is the inability to create and develop their market.

Conclusions for the Future of Companies Investing in Artificial Intelligence

  • Investments in AI technologies are growing dynamically despite many startups’ lack of specific products or profits, which may indicate the risk of creating a speculative bubble. Investors are willing to risk large sums of money by investing in untested businesses, which can lead to high losses if these technologies do not find commercial applications. 
  • Fraudsters’ use of AI poses new challenges for online security, especially for people less experienced in navigating the job market, such as recent graduates. Given the increasing use of digital technologies, there is a growing need for education on cybersecurity and information verification.
  • Both individuals and institutions should approach new technologies and AI investments cautiously, considering the risks and potential economic and social effects. Most AI startups face the problem of lacking a profitable business model despite significant capital investments. Despite possessing advanced technologies and accumulating funds, it is difficult for them to transform innovations into a stable source of income. Investors often decide to finance AI startups based on futuristic visions and promises rather than on specific products or generated profits. This indicates that the potential and novelty of the idea can attract capital even without a ready product or established profits.
  • Observing the current situation in the AI sector, one can see parallels to earlier booms, such as those associated with cryptocurrencies and blockchain, where investment enthusiasm did not always translate into long-term success.

Development of Digital Brands

Examples of brands like ChatGPT Copilot, DALL-E, IBM Watson, etc., show how strong a role brands play in digital markets. It’s not just about the big digital brands, but brands that were the first to exist in our consciousness and that we can position. Brands such as Spotify, Netflix, Brand24, Prowly, and many others, which were not children of large corporations, have emerged in our consciousness. The old rule says – to be the first in your category, and if you can’t be the first, create your own.

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