In the last two decades, the software industry provided a healthy breeding ground for incubating new businesses and ideas. From solving the day-to-day problems of end-users to building complementary tools for software developed by large companies, startups thrive in the disruptive market. They compete to differentiate based on the value they deliver to customers.

Artificial IntelligenceSource: Pixabay

But the changing dynamics of the industry have made it extremely risky to be an independent software vendor or a startup in the cloud and AI market.

There was a time when large platform companies delivering enterprise software chose not to compete with ISVs. The primary reason for this move was to let the partners survive while focusing on solving complex problems for enterprise customers. For example, many companies were complementing Microsoft Office suite through additional tools and plugins. Microsoft enabled and encouraged the ecosystem to grow around the office platform which directly helped the industry. Same was the case with Oracle and SAP when they shipped shrink-wrapped enterprise software while closing million-dollar licensing deals.

The other reason that influenced the growth of 3rd party ISVs was that the large platform companies were secretive of their differentiating factor. The secret sauce provided by internal research teams was used to improve the products and platforms but was never directly exposed to customers. Startups could deliver a less sophisticated version of the same feature as a standalone product for an affordable price. Multiple software components that were embedded in enterprise software were available from ISVs for a price. Enterprise software companies never bothered to productize those features as standalone products as they wanted to stay focused on the larger platform than spreading themselves too thin.

Fast forward to 2020 and we see increased competition among startup and large incumbent players . There are multiple reasons for this trend.

The first and foremost factor is the ability to ship and productize software rapidly. What was taking years for a platform company is now reduced to a few weeks. For example, if Microsoft decides to test the waters with a new product, it can quickly build a SaaS offering with APIs and invite customers to explore. The same company had to wait for three years before announcing a new SKU that the channel had to sell to potential customers.

The cut-throat competition among cloud providers is forcing the top 5 players to exploit every possible opportunity in the market leaving less space for the startups to maneuver.

Amazon Web Services is a modern example of a platform company that doesn’t blink an eye before announcing a new service that cannibalizes its partner’s and customer’s business model. When AWS ships a new service, Microsoft follows suit forcing Google to enter the same segment. Ultimately, this battle ends up in crushing emerging software companies that aim to deliver value by plugging the gap in incumbent platforms.

This trend is going to be increasingly visible in the AI tools and services market. The cloud computing industry has now reached a point where there is feature parity among top 5 players. With enterprises accepting and acknowledging the value of cloud, the technology has become boring.

The battleground has shifted from IaaS to machine learning and artificial intelligence. With deep pockets and unmatched R&D investments in AI, the top 5 players – Amazon, Apple, Google, IBM, Microsoft and Facebook – are moving really fast in productizing their internal innovations. They don’t mind exposing the secret sauce as an API or a developer service delivered via a freemium model.

Starting in 2019, the application of AI will become verticalized. Having built the tools, frameworks, APIs and services, the AI platform companies are now turning into niche industry verticals to offer highly customized services. What this means is that Amazon, IBM, Google, and Microsoft will have specialized AI-based offerings for healthcare, manufacturing, automobile, education, human resources and other industry verticals.

Hire by Google is a classic example of what a platform company can do with AI. The software claims to make the hiring process faster and simpler through AI. It is tightly integrated with G Suite enabling any customer to tap into the powerful recruiting tool. Hire by Google competes with dozens of startups that aspire to solve the hiring problem through intelligent automation.

The more recent example is Amazon Comprehend Medical – an AI-based service that understands and identifies complex medical information quickly and more accurately. Any AWS developer can send a scanned copy of a prescription or a report, and the service will identify and classifies the relevant medical terms. Why should AWS enter this domain instead of letting a healthcare ISV deal with it? Well, Amazon wants to be the one-stop shop for all AI-related services across industry verticals. It will directly drive the consumption of other services positively impacting the revenue potential. It’s a matter of time before AWS introduced Comprehend for legal, finance, and other verticals impacting the fate of dozens of global startups.

Microsoft is moving fast to infuse AI into Windows, Office, and other business applications. It will also expose cognitive APIs that make it simple for developers to consume AI when building modern applications.

The race towards delivering AI-based services for industry verticals by the top cloud platform companies will hurt the growing ecosystem of startups. What could be built as a viable commercial product by a startup would be reduced to a simple API by a platform company. For the company with a deep pocket, it wouldn’t make or break its business, but it is extremely hard for a startup that relies on this product as the primary offering.

If you are a startup or a SaaS company launching an AI-based product or service, ensure you have unique IP as a key differentiator. You wouldn’t want to see one of the top cloud providers turning your platform into a single free API.

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In the last two decades, the software industry provided a healthy breeding ground for incubating new businesses and ideas. From solving the day-to-day problems of end-users to building complementary tools for software developed by large companies, startups thrive in the disruptive market. They compete to differentiate based on the value they deliver to customers.

Artificial IntelligenceSource: Pixabay

But the changing dynamics of the industry have made it extremely risky to be an independent software vendor or a startup in the cloud and AI market.

There was a time when large platform companies delivering enterprise software chose not to compete with ISVs. The primary reason for this move was to let the partners survive while focusing on solving complex problems for enterprise customers. For example, many companies were complementing Microsoft Office suite through additional tools and plugins. Microsoft enabled and encouraged the ecosystem to grow around the office platform which directly helped the industry. Same was the case with Oracle and SAP when they shipped shrink-wrapped enterprise software while closing million-dollar licensing deals.

The other reason that influenced the growth of 3rd party ISVs was that the large platform companies were secretive of their differentiating factor. The secret sauce provided by internal research teams was used to improve the products and platforms but was never directly exposed to customers. Startups could deliver a less sophisticated version of the same feature as a standalone product for an affordable price. Multiple software components that were embedded in enterprise software were available from ISVs for a price. Enterprise software companies never bothered to productize those features as standalone products as they wanted to stay focused on the larger platform than spreading themselves too thin.

Fast forward to 2020 and we see increased competition among startup and large incumbent players . There are multiple reasons for this trend.

The first and foremost factor is the ability to ship and productize software rapidly. What was taking years for a platform company is now reduced to a few weeks. For example, if Microsoft decides to test the waters with a new product, it can quickly build a SaaS offering with APIs and invite customers to explore. The same company had to wait for three years before announcing a new SKU that the channel had to sell to potential customers.

The cut-throat competition among cloud providers is forcing the top 5 players to exploit every possible opportunity in the market leaving less space for the startups to maneuver.

Amazon Web Services is a modern example of a platform company that doesn’t blink an eye before announcing a new service that cannibalizes its partner’s and customer’s business model. When AWS ships a new service, Microsoft follows suit forcing Google to enter the same segment. Ultimately, this battle ends up in crushing emerging software companies that aim to deliver value by plugging the gap in incumbent platforms.

This trend is going to be increasingly visible in the AI tools and services market. The cloud computing industry has now reached a point where there is feature parity among top 5 players. With enterprises accepting and acknowledging the value of cloud, the technology has become boring.

The battleground has shifted from IaaS to machine learning and artificial intelligence. With deep pockets and unmatched R&D investments in AI, the top 5 players – Amazon, Apple, Google, IBM, Microsoft and Facebook – are moving really fast in productizing their internal innovations. They don’t mind exposing the secret sauce as an API or a developer service delivered via a freemium model.

Starting in 2019, the application of AI will become verticalized. Having built the tools, frameworks, APIs and services, the AI platform companies are now turning into niche industry verticals to offer highly customized services. What this means is that Amazon, IBM, Google, and Microsoft will have specialized AI-based offerings for healthcare, manufacturing, automobile, education, human resources and other industry verticals.

Hire by Google is a classic example of what a platform company can do with AI. The software claims to make the hiring process faster and simpler through AI. It is tightly integrated with G Suite enabling any customer to tap into the powerful recruiting tool. Hire by Google competes with dozens of startups that aspire to solve the hiring problem through intelligent automation.

The more recent example is Amazon Comprehend Medical – an AI-based service that understands and identifies complex medical information quickly and more accurately. Any AWS developer can send a scanned copy of a prescription or a report, and the service will identify and classifies the relevant medical terms. Why should AWS enter this domain instead of letting a healthcare ISV deal with it? Well, Amazon wants to be the one-stop shop for all AI-related services across industry verticals. It will directly drive the consumption of other services positively impacting the revenue potential. It’s a matter of time before AWS introduced Comprehend for legal, finance, and other verticals impacting the fate of dozens of global startups.

Microsoft is moving fast to infuse AI into Windows, Office, and other business applications. It will also expose cognitive APIs that make it simple for developers to consume AI when building modern applications.

The race towards delivering AI-based services for industry verticals by the top cloud platform companies will hurt the growing ecosystem of startups. What could be built as a viable commercial product by a startup would be reduced to a simple API by a platform company. For the company with a deep pocket, it wouldn’t make or break its business, but it is extremely hard for a startup that relies on this product as the primary offering.

If you are a startup or a SaaS company launching an AI-based product or service, ensure you have unique IP as a key differentiator. You wouldn’t want to see one of the top cloud providers turning your platform into a single free API.

(Excerpt) Read more Here | 2018-12-24 03:08:00
Image credit: source

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