AGI and Helmer's 7 Powers

While developing Lima AI platform and fully relying on OpenAI APIs, I have been reflecting on the defensibility of our product, now and in the next years.

Is AI going to disrupt every business? How? What is AI and how can we predict its effects? For lack of other simple mental models to describe AGI, I have made my very simple own (slightly inspired by a Ted Chiang novel):

"AGI will be an entity, a voice, that knows everything, and it'll answer any question - no more than that".

This means that I will know how to do and build anything ever invented by humans in simple steps. With 2 limitations: law and physics.

I won't be able to build a nuclear bomb without uranium; I WILL be able to build a new YouTube platform, but I WON'T be able to control people and make them switch from the original YouTube.

Anyways, it got me thinking about the Hamilton Helmer's book"7 Powers: The Foundations of Business Strategy". The author identifies seven distinct sources of enduring competitive advantage in business. Will they be disrupted? Let's see. Here are brief definitions and analysis of each:

Scale Economies: This refers to the cost advantages that a business can achieve as it increases its scale of operations. Larger companies can often produce goods or services at a lower cost per unit due to efficiencies in production, distribution, and other operational aspects.

Using Amazon as an example, the scale economy allows them to have hugely expensive and efficient fulfillment centers that are impossible to reproduce without the same scale. Can AGI allow me to have such scale without infinite money? Cannot see how. This strategy remains a WINNER!

Network Economies: Also known as network effects, this power stems from the value a product or service gains as more people use it. Essentially, the product or service becomes more useful or desirable as its user base grows, creating a barrier to entry for competitors.

Using YouTube again, the network effect is very hard to reproduce with the help of AGI: the majority of people will watch their videos where the majority of videos are, and the same is for the creators. Can AGI disrupt this model? Hardly, and therefore this is a WINNER!

Counterpositioning: This occurs when a business effectively positions itself against existing competitors' strengths or weaknesses. By offering a unique value proposition that differs from competitors, a company can carve out its own niche in the market.

Would AGI help an incumbent find a weakness in the market? Potentially YES; however, if we look at it from the perspective of a defensive strategy, we can assume that the knowledge about the weakness is provided to everybody who has access to the AGI. I feel like this is our first LOSER!

Switching Costs: Switching costs are the costs that a customer incurs when moving from one product or service to another. Businesses can create a competitive advantage by making it difficult or costly for customers to switch to alternative offerings.

Can AGI support a customer in its transition to another product or service? Maybe (sorry NYT!); however, when the switching cost is defined in, for example, a 3-year contract, AGI cannot evade the law. Is switching cost a winner? Not sure, MAYBE A WINNER!

Branding: Strong brands command customer loyalty, trust, and premium pricing. Brand power allows companies to differentiate their products or services in the minds of consumers, creating a lasting competitive advantage.

Ferrari is an amazing and valuable brand, thanks to its history and quality. AGI cannot help with history, but it does help with telling you what to do, consistently, to the highest SOTA degree. If not constrained by money, AGI will help us make an amazing brand. I think this is a LOSER!

Cornered Resources: This power stems from exclusive access to crucial resources or assets that are difficult for competitors to replicate or obtain. It could include proprietary technology, scarce materials, or strategic partnerships that provide a unique advantage in the market.

AGI may help me find new oil reserves, but in reality the status quo will remain: who owns certain resources won't be displaced by a very intelligent agent. They will maintain the resources and will keep on selling them. AGI may change the value of different resources, but will still depend on them. WINNER!!

Process Power: Process power arises from superior business processes, including operational efficiencies, innovative production methods, and effective management systems. Companies with strong process power can consistently outperform competitors by delivering products or services more efficiently or with higher quality.

Process is knowledge, and AGI has it covered. On behalf of humanity, thank you. From a defensibility perspective, it's a LOSER!

Conclusions:

WINNERS: Scale Economies, Network Economies, Cornered Resources

LOSERS: Counterpositioning, Branding, Process Power

MAYBE: Switching Costs At Lima we are building tools to buil communities.