Where is the Revenue - Is GenAI Headed for a Crash?

Sequoia Capital’s David Cahn recently put out a thought provoking article on the revenue gap in GenAI. https://www.sequoiacap.com/article/ais-600b-question/! Similar comparisions have been made with driverless car adoption and even earlier boom in dark fiber where market ecosystem and adoption created a lot of grief and investments that went south!

The case for GenAI adoption is strong and it’s now!

This is hugely important to all us in GenAI because a crash can severely impact funding, GTM, client adoption and establishing credibility with clients as you deploy GenAI enabled solutions.

GenAI really has to work- the promise and returns are huge and the tech is already in place. It’s more a question of ecosystem and market conditions that is limiting its adoptions. But a market crash would severly hamper the adoption and could set the market back by several years!

How do we ensure that it doesn’t go the way of driverless cars. Would a similar crash of dark fiber be coming soon? Here is my take.

The Revenue Potential of GenAI

Generative AI (GenAI) has been one of the most transformative technologies in recent years, promising to revolutionize various industries by automating tasks, generating content, and providing deep insights from vast datasets.

However, as with any rapidly advancing technology, there are concerns about its sustainability and potential for a market crash. Almost every cmpoany regardless of stage is pursuing a GenAI strategy or developing one! Most of the winners so far has been big infrastructure players like Nvidia, Microsoft, IBM etc. Nvidia is currently one of the most valuable companies in world riding of the demand for its chips.

The investment in GenAI has been substantial. According to IDC, global spending on AI solutions is expected to surge to over $500 billion by 2027, while Gartner predicts that organizations will spend $3 trillion on AI by the same year (Forbes). These eye-popping figures indicate a strong belief in the technology's potential to drive significant economic value.

IBM's recent financial results highlight the growing demand for enterprise AI solutions. The company's book of business for its AI platform, watsonx, has shown strong momentum, growing quarter over quarter and eclipsing one billion dollars since its launch in mid-2023 (IBM).

Why is there so much friction in GenAI Adoption

A lack of standards!

Adoption of GenAI in the enterprise is severely hampered by a host of factors - key among them being data leakage, security and privacy issues including lack of standards. For technologies like Cloud etc, we hgave standards like SOC-2 etc. but GenAI is too new and standards are not in place. Adoption is happening at a much faster clip in SMB and mid-market as revenue and growth are a much bigger priority than operational risks!

Overhyped Expectations

Despite the promising revenue projections, there are concerns about the sustainability of GenAI's growth. Some experts argue that the current hype surrounding GenAI is reminiscent of past technology bubbles. For instance, Phil Fersht, CEO and Chief Analyst at HFS Research, predicts that GenAI will crash and burn, similar to the RPA (Robotic Process Automation) hype five years ago (LinkedIn).

Employee Pushback

In many cases, emploees are worried about coming job losses and pushing back on GenAI initiatives. This concern is real as workers would need to be either retrained or redeployed as GenAI enabled processes form the core of business operations.

Technological and Regulatory Challenges

Technological limitations and regulatory challenges also pose significant risks. Gartner predicts that by 2026, 70% of cloud and software platform providers will bundle GenAI safety and governance packages with their primary services to mitigate risks (Forbes).

ManyAdditionally, most countries are expected to have regulations for AI technology that include explainable AI and embedded bias amplification controls by 2025.

SMB Adoption will be faster than Enterprise

Every new technology goes through a hype cycle and Generative AI is no exception. According to Gartner (my former employer), GenAI is at the peak of expectations and will see transformative benefit in two to five years.

As the technology and the market matures, there will different adoption rates in different verticals and departments. Adoption will be rapid very in marketing while similar gains will come from operational efficiencies in customer service etc. Entreprenesurs and new gen AI native business are popping rapidly to take advantage of the wedge that GenAI enables against established players.

Risk of a crash is there but …

The future of GenAI is a complex interplay of immense potential and significant risks. While the technology promises to drive substantial economic value and transform various industries, the overhyped expectations, employee pushback and regulatory challenges can delay things hurting real growth and productivity gains.

A short term crash could be coming but unlikely it will go the way of driverless cars or dark fibre!

What do you think?