It's been less than a year since ChatGPT erupted onto the scene, revealing a powerful new era in AI and promising to disrupt everything in its path. It has not disappointed--generative AI enables more creative, efficient and accurate use of AI, even as it demonstrates increasing agency and autonomy. This novel technology will transform our daily work and everyday lives in the coming years, and it's already catalyzing the next wave of consumer internet.
Consumer internet typically goes in waves. The first wave was Internet 1.0, initially bringing us information retrieval from the likes of Yahoo and then Google and e-commerce from the likes of Amazon and eBay, which were enabled by online transaction capabilities pioneered by companies like Paypal. Internet 2.0 was the social wave that brought identities online and, with the advent of mobile, gave rise to new categories and new market leaders like Airbnb, DoorDash and Uber. This wave is still playing out today with businesses like Instacart and Whatnot, but finding the next wave for consumer internet has eluded us. Emerging technologies like Crypto and VR are fascinating, but so far they have not impacted day-to-day use cases or meaningfully enhanced experiences.
New collaborative consumer experiences
Generative AI enables a startup to truly create new experiences and use cases which were not possible before. The first manifestation of this is through use of Generative AI in fun and playful ways. For example, Midjourney has developed a thriving community of over 16 million active users around its text-to-image AI tools, currently leveraging Discord. Can of Soup applied this concept of fun and creativity to allow a new social interaction to occur, producing generative photos of you and your friends. The virality and ability to share ‘stirs’ is highly engaging. It is one of the few social experiences that are fun and playful while also driving connectivity. One could argue that Facebook and other social networks could copy this product, but they haven’t yet and this may be a moment to break free from the constraints of established social networks.
Technology has continually enhanced creativity—the iPhone camera alone has transformed every user into a semi-professional photographer, with not only a great lens and camera but also great auto adjustments. Generative AI unleashes this creativity in entirely new ways, allowing for multi-modal content to be created and mashed-up across images, video, voice, music and sound effects across both real and imaged source content. Pika Labs, for example, is pushing the boundaries of generative video. Weaving this together with existing concepts of social is powerful and could upend existing players. One could argue that Gen AI could be considered a ‘filter’ on Instagram, but don’t forget that Instagram’s initial core benefit was a unique way to ‘filter’ photos–it was the hook that propelled the social network.
A more curated but closed internet
Generative AI also enables a new paradigm for search. Google was powerful in that it indexed all of the information that existed on the internet and allowed it to be immediately searchable and discoverable. Generative AI is already revolutionizing search by truly distilling the information retrieved—it leverages all of the searchable information and summarizes it into relevant, digestible content. The most advanced models prioritize accuracy of results through source citation and verification, which will make the output even more valuable to users. This process creates a more closed internet, one where a user is not navigating (or surfing) to disparate sources for knowledge. This could upend today’s advertising model where Google continues to be dominant.
Within a more closed internet, there is little room for advertising because the information is presented succinctly. This is a sharp contrast to today, where almost the entire Google home page could consist of ads disguised as search. Most online advertising is lead generation for e-commerce, including physical items like clothes and services like travel. As long as these categories are not replaced by generative AI through the use of agents (AI taking action), we believe that advertising will still have a place but in a diminished capacity. For example, Perplexity AI is focused on delivering the most accurate knowledge from the internet in a curated AI experience where the information is sourced and footnoted, allowing the user to verify the authenticity of the content. This reduces concerns that the AI may be unreliable or inaccurate, and gives the user more confidence to trust the product and habitually come back. Search becomes more personalized and more contextualized, radically simplifying complex information gathering because LLMs have the power to reason and now maintain context.
Prosumer creative tooling
Another area of consumer that is blossoming is the prosumer category. In the early days of the iPhone there were many apps that brought enhanced functionality to the iPhone ecosystem, including a $5 flashlight app and a $2 ringtone app. These may have been meaningful businesses for founders but few, if any, ultimately scaled to become large, enduring companies. We are seeing a similar trend play out in this new wave of AI applications—there are scores of single-use experiences leveraging AI, like Lensa’s AI-generated photo collections. We suspect that many of these types of use experiences will get folded into larger applications.
Most intriguing is when AI does something that is unique and different that could not have been accomplished before without AI, and is hard. Rewind is an instructive example: this generative AI prosumer product is reminiscent of Dropbox in that it blends the use cases of both consumer and enterprise and, at the surface, one could say that there is competition from established players. But in fact, Rewind is creating a true memory of activities online, for information retrieval in both the personal and professional contexts. The novel AI technology behind Rewind is extremely challenging to build and could only be possible with the new Mac silicon chips. Canva built a compelling business off of marketing and design tooling. We think this is just the beginning of large-scale businesses in the prosumer ‘creative’ category. We are looking for more opportunities in the prosumer area where we can truly find unique AI use cases that transform the experience.
AI-native consumer applications are just beginning, and momentum is just starting to build in terms of compelling experiences and use cases. The teams building these products do have a common thread–they tend to be more experienced technically, particularly around AI. Many have deep machine learning backgrounds, and they understand how AI can deliver new experiences, not just simple features atop existing applications. We could not be more excited about the transformative potential of generative AI in the consumer space, or more eager to back the ambitious teams building novel applications and experiences in this watershed moment.
Notes and Sources
- Header image generated with Ideogram
- Number of Midjourney Users and Statistics  - MLYearning
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