Artificial intelligence (AI) is still receiving a tonne of attention as it is believed to be the future, with some even considering it as the 4th industrial revolution.
In the start-up space, AI companies have sprouted across the globe as it is a field that thrives on innovation, with the potential for new entrants to carve out their own niche value-add.
Evidently, investor interest still runs high as quarterly funding to US-based AI companies increased 29% in Q1’18.
The question is, how quickly can these AI startups grow, and what happens when they start to mature?
Algorithm-based AI startups may well offer an exciting proposition as they hustle for funding, but the algorithm they painstakingly develop while collecting a mass of data is insufficient to form the sole basis of a truly large company.
They often plateau as companies taking on outsourced tasks that their AI capabilities can handle more effectively. While this definitely helps them become profitable, the real challenge lies in scaling to proportions akin to those of internet companies.
The world’s highest-valued AI company, SenseTime of USD$4.5bn, is an example of such a trajectory. SenseTime focuses on systems that can analyse faces and images on a large scale, and has turned profitable in 2017. It’s business so far has mainly revolved around providing solutions like facial recognition to entities that have a need for them, such as government bodies in China. However, high growth with such a specific focus can be difficult in the long term and it will be essential to expand to other offerings as well.
Internet companies still superior in growth and value
More generally, such algorithm-based AI companies will face similar bottlenecks, and AI systems integration for broader and more capable AI systems can only help alleviate and not solve this problem. Compared to internet companies such as Amazon (valued at USD$783bn), AI companies are not at the same magnitude of value nor growth although they have the upside of being profitable earlier.
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