Venture: Tough Economic Climate: AI Startups During COVID-19
Since the novel coronavirus hit the world, we have seen a consortium of companies majorly struggle to keep afloat. Part of those companies being hit is the world of artificial intelligence.
In a good economic climate, it is already difficult for AI companies and Research & Development initiatives to stay afloat. Moreover, and since the economic downturn, very few AI startups have been able to generate revenue. Many companies have been attempting to adapt to what COVID has delivered but that so far has been a tall task.
When an AI company enters the market, they tend to adapt to what their product will be used for. Thus, a lot of companies go in with one idea for their product and the outcome is often very different. In this time of discovery, we see that it these startups are struggling a very hard time generating revenue and tend to solely rely on venture capitalist money.
This can lead to a whirlwind of problems that may not be reversible as the AI industry is held hostage by these banks. By preventing the most important of AI, that being creativity; it is imperative that the banks and the industry have a bridge of trust in order for the industry to flourish.
That seed money is the only source of income for most AI startups, which in turn, makes the profitability for in the first couple of years very difficult. On a typical scale of 80 AI startup companies a year, an average of 10% or 5 of them are going to be able to survive this current economic climate.
Kai-Fu Lee is a computer-scientist businessman who has devoted his life to the world of AI. He sees AI taking over the world in a matter of time through a series of waves. First, we see the deployment of internet AI, where we predominately see recommendation engines.
This means that there are algorithmic systems in place that learn from masses of user data to curate online content personalized to each one of us. People commonly complain about how they see advertisements on their social media on what they were searching from before, and this is why.
The second wave is business AI where it takes data that traditional companies have already labeled in the past and categorizes it and finds similarities. The third wave is perception AI, using sensors and merging with our physical environments for example self-driving features in cars in one of the many steps in this area. The fourth wave ties in with the third wave, autonomous AI where the involvement of robots that will be able to create economic value, replacing task that can be automated.
(Credit/World Economic Forum) Kai Fu-Lee at the World Economic Forum discussing the future of AI
These companies need to be able to adapt to the world around them and use their technology for the problems that are occurring now. Being able to find the potential fit for their product is the most difficult part as it takes to long to occur before they run out of money.
With layoffs in small tech companies hitting an all-time high, we see a consolidation of companies across the country closing the international branches and focusing on their main headquarters. With smaller companies not being able to gain any traction in their market, big companies pounce on their situation and absorb them by giving them a small payoff.
Over a period of time, this can have a larger effect as the AI market can be monopolized by a few companies and not allow for any more startups to emerge into the market. From a consumer perspective, this could mean that down the line we only have access to a hand full of companies running the market of AI and the creative market for AI expansion is shutdown.
A website known as Layoffis.fyi has been tracking the number of people that have become unemployed since the coronavirus has begun. Over 500 startups have had layoffs, totaling to 67,496 people as of May 24th.
These numbers will continue to rise with less money being released by venture capitalists. The withholding of investments is putting a large strain on the advancements of any AI startup and forces these companies to downsize.
Companies in specific categories like housing and transportation have taken a large hit as people have had done less traveling and the mentality of working from home has taken the world by storm. The new norm of going to work has been people doing everything from home which has left many companies in quite the predicament to the wayside. With an unknown return date, many companies are stabilizing over the internet, which allows for AI to flip the switch and make a pivotal turn that will assist companies in that aspect.
In our current political climate, AI is looking to be used by human rights activists in order to prove their innocence. Legal accountability could be crucial in the AI market as it is able to use face recognition in visual devices and identify people. This is one of the many tactics that AI has been used for currently, people in protest and riots who commit crimes can now be identified.
On the other hand, there are many industries that are benefiting from this new norm, take for example People.ai., People.ai is a company that focuses on increasing sales and marketing effectiveness to that help companies create easier lines of communications.
CBInsights
It is AI companies like this that have pounced on the poor economic climate and have been able to use the current situation to their advantage great advantage of the situation. Reportedly, They have stated that 90% of customers in the work from home market are up for a contract renewal this quarter have either renewed or expanded their contracts and have also been adding large customers in recent times.
This gives a glimmering hope for the rest of the AI startups, hope that they’ll make it through these tough times. Being able to adapt to the consumer interests that have grown in the past three months such as streaming services, grocery store delivery, alcohol, and fitness equipment, is key.
This is a prime opportunity for AI-driven productivity, where the world is becoming more reliant on AI for their business to function at a proper level.
(Amber Case) In the coming waves, AI is emerging as a vital asset in the professional world
If correctly approached, this downfall in the economy could be a great opportunity for AI businesses to make a move in their company and make sure that they stay profitable.
AI has been a crucial component in the tech world for the past decade and will continue to make a major impact globally in the world. Just because there is an economic downturn does not mean that the entire AI world will fall, following the pandemic this time has passed the world will make great leaps and bounds.
Covid-19 has been a learning experience for many companies to learn and adapt to a world that has constantly changing variables; by shifting their business model and making themselves more well-positioned so that they will be able to respond to a crisis the next time it occurs.
The problem that has impaired hurt many AI companies is that they have a very niche market that their tech applies to and that takes a lot of funding to get the company off the ground.
Having a more broaden business model will allow for many companies will be able to make a shift in their production. We have seen other companies outside of the tech world being able to do this, for example, many distilleries have switched their production to hand sanitizer and disinfecting products over alcohol production because they have been able to adapt to the situation and realized that making these products will allow them to be a lot more profitable.
In line with AI companies, they can play the market and remain flexible in their product production, so their products are always in demand.
In the end, the pandemic economy time will force companies to become more defensive in their projections and look at the broader picture. With a more realistic vision, these companies can be able to stand strong in shaky times and hopefully see a return on their investment.
Most startups are risk-averse and are forced to stick with what they have planned to make their investors happy. Sometimes it will pay off to go against the grain and stick towards a path that you can trust when the outside world can leave so many unknown elastic variables.