Insights from the AI S-Curve Shift

Hidden Insights from the AI S-Curve Shift

Beyond the obvious takeaways, here are deeper, less obvious insights AI founders should internalize:

1. AI is in a “Honeymoon Phase” – But Expect a Reckoning

• Right now, AI products can launch with minimal polish and still get users because people are eager to try new things.
• However, the market will eventually mature, and today’s “good enough” products won’t cut it in 1-2 years.
• Expect a mass extinction of AI startups when the novelty effect fades, just like mobile saw a post-App Store crash.
• Hidden insight: The AI winners won’t be those who grow fastest now, but those who build lasting retention models before the hype cools off.

2. AI’s Biggest Bottleneck Will Be Distribution, Not Technology

• AI technology is evolving rapidly, but getting users at scale will be the real challenge.
• In the early days of mobile, distribution was free—app stores, social virality, and ads were cheap.
• Now, distribution is expensive (ads are costly, App Store rules are strict, SEO is crowded).
• Hidden insight: AI startups should focus as much on novel distribution channels as they do on product—building community-driven, influencer-backed, or proprietary ecosystems to onboard users.

3. AI’s True “Moat” Will Be Data, Not Just Algorithms

• Open-source models will commoditize AI tech—there won’t be lasting moats in raw algorithms.
• The real moat will be proprietary data, network effects, and brand recognition.
• Hidden insight: AI founders should control the data pipeline, own user-generated data, and create feedback loops to make their product smarter over time.

4. Investors Will Overfund AI Startups—Then Pull Back Hard

• Investors love early S-curve industries because they expect massive returns.
• However, most AI startups today won’t survive beyond the novelty phase.
• There will be a wave of easy funding in the next 12-24 months, followed by a brutal market correction.
• Hidden insight: The best AI founders should raise smart, spend wisely, and prepare for capital scarcity when the AI market matures.

5. The “Second Wave” of AI Startups Will Be the Most Valuable

• The first wave of AI startups is focused on raw capability (e.g., image generation, chatbots).
• The second wave will be about real-world AI integration (B2B automation, AI-native tools for industries like healthcare, legal, finance).
• Think of mobile’s first wave (gimmicky apps) vs. the second wave (Uber, Airbnb, TikTok).
• Hidden insight: The most valuable AI startups won’t be today’s viral tools but those that embed AI seamlessly into high-retention, high-value workflows.

6. Regulation Will Create “AI Fortresses” – Be Ready

• AI is still in a regulatory Wild West, but governments will eventually step in (privacy laws, AI bias restrictions, deepfake bans, etc.).
• Regulation will favor incumbents (like how GDPR strengthened Facebook & Google by making it harder for new competitors to collect data).
• Hidden insight: AI founders should watch regulation closely—those who adapt early to privacy laws & safety requirements will have an advantage when compliance becomes mandatory.

7. AI’s “Winner-Take-Most” Markets Will Form Faster Than Mobile’s

• Mobile took a decade to consolidate into the Apple/Google duopoly.
• AI will consolidate much faster because the infrastructure (cloud computing, APIs, open-source models) accelerates the cycle.
• In AI, there will be fewer long-term winners because the best models get smarter exponentially with usage.
• Hidden insight: The AI space will solidify into a few dominant players much faster than people expect—early founders should focus on defensibility ASAP.

8. UX/UI is AI’s Weakest Link – And a Huge Opportunity

• AI tools today are powerful but clunky—they work, but they aren’t intuitive for most users.
• The next generation of AI startups will win by focusing on UX, not just model accuracy.
• Think of how Apple “won” mobile not by inventing the smartphone, but by perfecting it.
• Hidden insight: The biggest opportunity in AI isn’t just better models—it’s making AI tools 10x easier, more seamless, and more invisible in the user experience.

Final Hidden Insight: AI Founders Should Play the Long Game

Many AI startups will rise fast and fall just as quickly. The real winners will be those who look beyond short-term virality and focus on lasting user value, retention, and defensibility.

AI is the new S-curve—but it will plateau faster than people expect. Build for what comes after the hype.

I was inspired to write this for my simplicity - the thought leader was Andrew Chen: The Mobile S curve ends: https://andrewchen.substack.com/p/the-mobile-s-curve-ends-and-the-ai