Winning in Vertical AI: The 2 Pathways for Success

Originally published on the Equal Ventures newsletter

As we highlighted in our recent Insurance x AI and Logistics x AI posts, we’re starting to see the first wave of breakout Vertical AI companies across sectors. We’ve been tracking many of these closely and have backed several thus far. As we’ve done so, we’ve started to see a few distinct patterns emerge in how AI takes shape across industries, and how market conditions allow certain approaches to flourish over others.

As founders look at transforming a space with AI, the first question that we see them needing to answer is whether they intend to sell AI capabilities to a customer segment (through AI Software or Services), or whether they intend to leverage the technology to compete head on with industry operators.

Although these considerations vary by vertical, we’ve found a helpful framework to guide this decision is to map the impact that leveraging AI-enabled capabilities can have on an industry customer, and to gauge the willingness to adopt and pay that the end customer may have.

The chart shows a simple breakdown: If customers have high willingness to pay for AI solutions, sell them AI software or services. If customers are resistant to pay or adopt solutions and the impact can be high, consider ingesting AI to compete head on.