Why AI Hype will not be like Crypto Hype
AI hype has grown past crypto hype now. It is almost impossible not to compare the two. Some people are dismissing the current AI hype cycle as the next bubble. I know, “The four most expensive words in the English language are: This time is different.” However, this time it IS different. Crypto and AI are different in an important way: Use case matters.
There are three primary risks we can have with a new startup, and those risks can be combined into risk profiles as we discussed in On the Risk Profiles of AI Startups:
Feasibility Risk: Can we build it?
Viability Risk: Can we generate value for the business?
Value Risk: Can we generate value for the users?
The value question tends to be the most challenging part for software startups and crypto projects as well. Most crypto projects suffer from a lack of real use cases. Ask yourself how many crypto projects are better than non-crypto ones. Many crypto projects are just existing use cases plus "decentralized" or "tokenized". The fact that a company is public, meaning that anyone can buy shares in it, doesn't mean anything about the value it provides to users.
The first distinction of AI startups is that it is easier to answer the value question. You can know the utility of an AI project by directly using it. Let's, for example, think about image generation. It's a cool technology, and there is a lot of hype. However, the utility is straightforward. You can use it to illustrate a blog post, create a new comic book, or an ad banner. These are activities that people already do every day in many sectors of the economy.
Another big difference between crypto and AI is the speculative dimension. Most of the crypto engagement came from speculation and not usage. This is a massively important distinction. There was more engagement in betting on tokens and currencies than using "Web 3.0" products. AI startups tend to follow the more traditional form of funding, which makes it harder to speculate since you don't have tokens being offered in the market. There will be many speculative bets on AI, but it will not reach the same level as crypto.
Many speculative bets in Web 3.0 failed for lack of value, which means that the end product of most projects didn't deliver enough value to justify the investments. In AI, we will see a different kind of speculative bet. We will see many speculative bets on feasibility, which can generate a hype bubble.
Theranos is a good case of the hype that could generate trouble in AI. Another less damaging example is Magic Leap, the creator of Augmented Reality glasses. The company raised more than a billion dollars before releasing a product. There was a lot of hype around how the company would revolutionize everything. This hype can be built because the product is still in development/research, and everything is possible. This could also happen with an AI startup. Promises of AGI and disruption can be made with initial technical success, but delivering on those promises could be harder than initially expected.
AI has stronger use cases than crypto. There will be some hype and a small bubble built around AI startups. However, the smaller potential for speculation will make the frauds and spectacular failures the exception, not the rule.