AI, Market Dynamics, and False Claims of Competitive Advantage
Many AI purveyors and proponents claim that the arrival of generative AI (GenAI) will give organizations that adopt it a tremendous (or “huge,” “massive,” or “lasting”) competitive advantage. Here is one example from Capitalizing on the Gen AI Enterprise Software Opportunity, a publication from Harvard Business Review’s Analytic Services group that Amazon Web Services sponsored:
“Adding generative AI functionality to enterprise software holds the potential to create huge competitive advantage for software companies.”
As former football coach and current ESPN College Gameday analyst Lee Corso would say to those making such pronouncements, “Not so fast, my friends.”
While some companies in some industries will derive competitive advantages from GenAI and other forms of machine intelligence, most will not. The most likely outcome for enterprise software makers and others is that they will create a tremendous amount of “consumer surplus” and end up in the same relative positions they were in before the introduction of GenAI.
As Michael Porter argued in “What is Strategy?”, competitive advantage is built on differences that can be sustained. If every software vendor adds a chatbot or AI Assistant to its software, which they will, then no specific vendor will gain an advantage.
This video1 explains the most likely outcome, given that these software vendors have access to the same or equivalent GenAI technologies.
Paraphrasing Porter from the same article, while adding an AI Assistant results in absolute improvement for all, it leads to relative improvement for none. Generic GenAI applications will become a cost of doing business rather than a source of competitive advantage.
Any company, not just enterprise software developers, pursuing advantages through AI and other machine intelligence will need a much more comprehensive and sophisticated strategy than simply adding an AI chatbot to their products or processes.
As far as I know, the Value Equivalence Line concept mentioned in the video was introduced by Ralf Leszinski and Michael Marn in “Setting value, not price.”