[90] Trend: AI Centric Hardware
[AI-First Hardware, Strategy, Moats]
GM Readers!
Sharing an essay for our Evolving Internet Insights Newsletter unpacking an emerging trend we are seeing around AI and Hardware.
-LJW
(P.S. For the summary and further breakdown of this essay, follow me on Twitter)
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Note: Some sections of this essay were originally released on my Evolving Internet Insights newsletter.
So far, many of the attention-grabbing, generative (Gen) AI innovations this year have been in the software space. But recently, it was reported that OpenAI is entering the hardware arena in a major way by building a mobile phone that is “AI-first.” For a giant like OpenAI, this move (if true) makes sense, especially if they want to “own the whole stack” (read: vertically integrate, remove platform dependencies) and have a hardware product line they can leverage to create a “sticky” ecosystem where consumers are highly resistant to seeking substitutes (à la Apple, Google, etc.) .
But OpenAI isn’t alone, there are other companies jumping onto the AI x Hardware train. 🚂
Let’s dive into some examples.
Big Companies Building AI-first Hardware
1. OpenAI Mobile Phone
OpenAI is potentially joining forces with legendary designer Jony Ive (who helped build the famous iMacs with the translucent colored case backs, many iterations of the iPhone, among others) to build a mobile phone from the ground up that is AI-first. And Softbank has already shown interest in committing $1B for the new venture.
This is a strategic move to own the whole stack from hardware to software and create / control the user experience. This move paints a future where AI is not just another technology that optimizes other technologies, but puts AI at the center of its creation and development. As we covered recently, ChatGPT is also gaining the ability to “see and hear” inputs. Given this direction, our guess is OpenAI wants to make using ChatGPT more intuitive. Instead of typing in a prompt, we should be able to speak to ChatGPT the same way we speak to a friend. While we can effectively do that on existing mobile phones, this era of mobile phones were optimized for scrolling and touch (read: not AI-first).
2. Meta x Ray-Ban Sunglasses
Meta recently launched its smart glasses collaboration with Ray-Ban with Meta’s AI built in. In the announcement blog post, Meta stated that the goal is to have these glasses “understand what you’re looking at and help you out. If you want to know what building you’re standing in front of or get a translation of a sign on the fly, your Ray-Ban Meta smart glasses will have the answer.” Also, Meta teased that in the future, “smart glasses will be an important platform in the future not only because they’re a natural way to see digital holograms in the physical world, but also because soon you’ll be able to let your AI see what you see and hear what you hear—which will make your smart glasses more useful over time.”
Smart glasses are not just about introducing a new product but about embedding AI into nearly every aspect of our lives in a manner that is unobtrusive yet functionally and profoundly impactful. This brings us closer towards a future where our accessories are not just “dumb” items we wear, but truly “smart,” enabling us to become actively better informed participants in our daily interactions.
Startups Building AI-first Hardware
While big companies are making their moves into hardware, AI-first startups are also boldly stepping into the hardware arena, rethinking the potential and purpose of “the physical” altogether.
3. Humane AI: Wearable Pin
Humane, a startup that has raised $230M, teased its “AI wearable pin” device that will serve as your personal AI-powered concierge, at Paris Fashion week. The company noted that “the AI Pin is a type of standalone device with a software platform that harnesses the power of AI to enable innovative personal computing experiences…” Humane added, “the device is privacy-first, with aspects such as no wake word and therefore no ‘always on’ listening, reflecting Humane’s vision of building products which place trust at the center.”
4. Rewind Pendant
Rewind, a startup, introduced the Pendant, a wearable device that captures and transcribes real-world conversations throughout your day and stores and encrypts those conversations locally on your phone. Rewind wants the Pendant to be a personalized AI assistant that helps you record your digital memories (securely). According to the company website, here are some potential use cases:
So What? 🤔
Traditionally, building a hardware company is challenging. Unlike software, hardware companies have to manage costly aspects of the business like the costs of hard goods, complex manufacturing processes, and supply chains that are global (just to name a few). All of which eat into profit margins. This is why many companies opt to build software, with the old adage “hardware is hard” ringing true.
But… if you can successfully build hardware (and there is no better example than Apple), then you are in an enviable position. Apple’s integration of hardware and software has allowed it to become one of history’s largest companies.
Here are a few reasons why companies want to pursue hardware in AI:
Unclear Moats in the Application Layer: In terms of the competitive dynamics in the AI industry, it is unclear if the application layer has any defensibility. Many AI startups are just “wrappers” built on top of foundation (read: underlying) models like GPT and other LLMs. For example, Jasper AI, an AI-powered writing app that was an early winner of the AI boom, reported that it was cutting its valuation due to slowing growth. Jasper has been disrupted largely by copycat businesses and free alternatives from the models that Jasper is built on like ChatGPT.
Creating Personalized AI-first Experiences: Creating hardware that is purpose built for generative AI use cases allows companies to create better UI/UX experiences for consumers. For example, if a consumer wants to ask an AI chatbot about something they are seeing in front of them, one way to do so is to take a photo and upload it. But an even more seamless way to achieve the same result is for a photo to be automatically taken through (smart) glasses that a consumer is already wearing.
Building Defensible and “Sticky” Ecosystems: The integration of custom-built hardware and software offers a symbiotic relationship where each can be fine-tuned to enhance the other. For companies that are successful at this, they might be able to create the “App Store” of AI, where they incentivize other developers to build on top of their hardware ecosystems. Again, some of the largest companies (e.g. Apple and Google) have found tremendous success using this strategy.
We think purpose built, AI-first hardware is an important emergent trend to watch as the AI space continues to evolve.
So yes, we think hardware is cool again.
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