How to win at Vertical AI

🌈 Abstract

The article discusses the opportunities and strategies for vertical AI players to create long-term competitive advantage by leveraging AI agents and open APIs to rebundle workflows across different business applications.

🙋 Q&A

[01] How AI Agents and Open APIs create new rebundling opportunities

1. What are the key opportunities for vertical AI players?

• The real opportunity of AI lies in the ability to reconfigure value creation across vertical value chains, not just in horizontal B2C use cases.
• Vertical AI players can create a flywheel of increasing defensibility by fine-tuning proprietary models and tightly coupling them with the user interface.
• However, to win in the long-term, vertical AI players need to go horizontal by rebundling across multiple workflows and establishing a hub position.

2. How do AI agents enable new rebundling opportunities?

• AI agents can solve the "goal-seeking problem" by scanning the environment, planning, and executing tasks across multiple APIs and digital resources to achieve a desired outcome.
• This allows AI agents to rebundle workflows in a way that replaces managerial effort, creating a new locus of rebundling compared to traditional software.

3. What factors determine winners and losers in vertical AI?

• The sophistication of the AI agent and the degree of interoperability/open access to third-party resources in the domain.
• Domains with high interoperability and agent sophistication favor vertical AI upstarts, while incumbents have an advantage in domains with established workflow hubs.

[02] The End Game: Go vertical to go horizontal

1. What is the end game for vertical AI players?

• The end game is to develop horizontal advantage, not as horizontal AI but as a horizontal hub position leveraging AI agents for rebundling.
• This involves first leveraging horizontal capabilities to go vertical, developing vertical advantage, and then using that vertical control point to rebundle horizontally using AI agents.

2. How do vertical AI players create a horizontal hub position?

• By developing a proprietary fine-tuned model, access to vertical data, and a vertical-specific UX, vertical AI players can create a control point and primacy of user relationship in that vertical.
• They can then leverage this control point to start rebundling "over the top" using AI agents, eventually emerging as the horizontal hub that coordinates across multiple capabilities.