If artificial intelligence develops as a general purpose technology (we cannot be sure, yet), it might have horizontal and vertical impact on businesses, reorganizing functions and reshaping core business models, as did the internet.
As has been the trend for software, the internet had a horizontal impact, reorganizing value chains, functions, products, value creation and revenue models across industries.
The vertical impacts affecting industries have been equally dramatic. Think of the emergence of ride sharing, lodging and other “sharing” or “platform” business models built on the internet’s existence.
Sharing platforms (peer-to-peer networks) disrupt existing industry models because they are “asset light.” Hotels are capital intensive, as are taxi services. But the use of smartphones and private residences and autos to replicate “lodging” and “local transportation” services recasts the role of capital in any industry or business where a sharing platform is possible.
The sharing network allows a direct peer-to-peer exchange between buyers and sellers.
The internet also enabled multimedia communications at scale, thus creating the conditions for on-demand digital media to replace all prior forms of electronic and digital media, once broadband internet access was reasonably well available. So content consumption shifts from physical form such as newspapers, magazines and discs to streaming or web delivery.
So product formats change. So do value propositions. With the emergence of streaming and web access to music, revenue generation in the music business shifted from “selling prer-ecorded copies of music” to “live performance.” Revenue now mostly is earned by performances, not units of pre-recorded music or streaming content purchases. Value now is created by live performance.
The internet also allowed for customization and individualized experiences, either of form or timing. Users could access “what they want, when they want it.” That is true for mass-produced content such as movies or TV shows or songs as well as for the custom, personal networks of social network “friends” and “following” topics.
The internet also enabled firms to operate across far-larger markets, both for physical goods and intangible products as well. So distribution networks could be reshaped to support online fulfillment and logistics networks rather than in-store retailing: Amazon instead of shopping at a local retail location.
Similarly, marketing efforts could be reshaped to use virtual mechanisms rather than physical, targeted and customized based on user search and social media behavior, rather than demographics or psychographics.
Platform business models are perhaps the clearest example of how an industry can be reimagined. Throughout history, most businesses have operated on a “pipeline” model, where a given product is created, sold and distributed by the owner of that product.
The internet enabled “platforms” where the value is the exchange that matches buyers with sellers, the exchange itself often owning neither the assets sold nor the customer relationships with buyers.
The revenue model is a fee for arranging the match of buyer and seller. Once the platform reaches sufficient size, other revenue sources, such as subscriptions or advertising, also become feasible.
Ecosystems often become more important as well. The whole idea behind a “platform” is that it provides increasing value (for tenants, data center operators and retail customers) as more partners, suppliers and features are enabled on the platform. Consider data centers.
These days, “software” or “digital services” are purchased directly from, or fulfilled by, a cloud-connected data center.
These days, much of the value of any data center is the other networks, software suppliers, content and application providers that can be connected within any single data center. Some of the value comes from the ability to more easily (cross connect) or quickly (direct peering) exchange data between partners, such as a video streaming network reaching the backbone and local distribution providers of internet access.
In other cases, proximity makes it easier for suppliers to bundle each others’ services in a more-transparent and simple way for customers who are buying “computing, storage or apps as a service” from a data center.
Convenience is another attraction of the ecosystem, as when a single customer is able to purchase multiple large language model, security or enterprise software services at a single location, or from a single computing as a service supplier.
The point is that AI could have a similar impact, whether it becomes a GPT or not. AI could change the horizontal functions any business or process requires. AI also could reshape particular industries by changing value propositions. Advertising, content, sales, banking and finance are among the obvious areas where AI could add value in the same way that prior data mining has had.
Consider the many new industries, roles, capabilities and products enabled by the internet, from e-commerce to cloud computing. In fact, some would argue AI itself is enabled by the internet.
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