Chi-Hua Chien Predicts AI Future: The Real Winners Won't Be Selling AI
Chi-Hua Chien, a seasoned venture capitalist, shares insights on the evolving AI landscape, emphasizing that the true beneficiaries will be those who leverage AI rather than sell it.
Chi-Hua Chien has over two decades of experience as a venture capitalist and approaches his work with a mindset akin to that of a cultural anthropologist. As a co-founder of Goodwater Capital, a firm dedicated to consumer and prosumer technology, he has developed a diverse portfolio that includes investments in sectors such as entertainment, healthcare, fintech, and live experiences. Notable companies in his portfolio include MIDI Health, Fever, and Monzo. Chien was previously an associate at Accel, where he played a pivotal role in discovering a six-person startup from Harvard known as The Facebook at just 27 years old.
Chien's keen understanding of human behavior influences his predictions about technology and market dynamics. He believes that Americans will always be hesitant to trust a single application with both their social interactions and financial matters. He also anticipates that the gap between the most sophisticated AI models and those that can be run on personal devices—which once spanned two years—will narrow to just three months within the next year.
Chien has recently voiced opinions that many in the venture capital sector are privately contemplating: the process of commoditization in the AI model layer is already starting, and the most significant beneficiaries of the AI revolution are unlikely to be the companies that sell AI technologies.
In a recent interview, Chien discussed the current landscape of venture capital, particularly the increasing candidness among founders and investors regarding their frustrations with VCs. He noted that this trend is part of a broader phenomenon where political discourse is seeping into business conversations, likely reflecting a peak in market conditions. He explained that many large venture firms have become vertically integrated, which diminishes the necessity for maintaining relationships with co-investors. This shift may contribute to the more outspoken behavior seen among investors today.
Chien also addressed the concept of 'fast follow' rounds, where firms invest large amounts at one valuation and then quickly follow up with smaller investments at a higher valuation, thereby inflating the headline numbers. He indicated that this practice has been prevalent for some time, as top-tier companies often raise successive funding rounds within just three to six months. This rapid pace of financing and aggressive marketing of valuations suggests a market with more demand than supply, leading to quick price adjustments for new rounds of investment.
He elaborated on the trend of commoditization within infrastructure companies, stating that over time, applications tend to capture the majority of value. Chien drew parallels with historical tech cycles, noting that infrastructure market caps peaked in 2000 and have not surpassed that level in nominal terms over the past 25 years. In comparison, application companies created significantly more market value during the web and mobile eras. For instance, application companies generated $3.1 trillion in value during the web cycle, while infrastructure firms only contributed $400 billion.
Chien pointed out a recent development in the AI market, specifically Google's announcement to reduce the price of its subscription AI product from $7.99 to $4.99 per month, while also doubling the storage offered. This move signals the onset of price competition in the AI space, particularly among companies like Google that hold advantages in vertical integration and distribution.
Chien emphasized the importance of hyper-personalization in determining the next wave of successful companies. He explained that effective personalization fosters greater customer satisfaction, deeper engagement, and increased average revenue per user (ARPU) over time. He cited examples from his portfolio, such as Triumph, Ritten, and Flow GPT, where customers perceive the offerings as entertainment applications rather than AI tools, leading to substantial annual recurring revenues (ARR) at high margins.
He also discussed the success of MIDI Health, a women's health company that uses AI to expand access to hormone replacement therapy for perimenopausal women. By leveraging AI, the company can reach hundreds of thousands of patients who previously lacked access to care, all while maintaining cost-effectiveness.
Chien expressed optimism about the progress of AI technology, stating that it is now possible to run AI models on personal devices that are comparable to the best models available just six months ago. He anticipates that this lag will continue to shrink, potentially reaching just three months by next year. However, he noted that the specific use cases for these advancements are still in the early stages of development, much like the transition seen during the mobile revolution.
He also reflected on Facebook's repeated struggles to create a super app that combines financial services with social entertainment. Chien pointed out that various attempts, including Facebook Credits, Facebook Pay, and Libra, have failed to bridge the trust gap between users' social and financial interactions, particularly in Western markets. He explained that financial transactions carry a seriousness that contrasts sharply with the more casual nature of social media, creating a significant psychological barrier for consumers.
Finally, Chien discussed the potential for a resurgence in demand for in-person connections as a counterbalance to the abundance of digital content. He believes that as people seek real human interactions, investments in companies like Bump, which facilitates physical world interactions through digital means, and Fever, a European events company, will become increasingly relevant. Chien foresees a shift away from purely online experiences, with AI playing a crucial role in enhancing the personalization and relevance of real-world engagements.
