How will the competitive dynamic of LLM-powered chatbots play out?
Will it be more like search engines or more like operating systems?
Search engines:
Hard to build: expensive fixed cost that requires specialized knowhow.
Free: marginal cost can be supported by advertising
Easy for a user to try: Just a click away
Not deeply sticky: very little meaningful state for a user in the system that's hard to build up elsewhere.
Moderately direct network effect: the more that users use it, the better the quality gets.
Despite this, Google stays in a commanding position because no one else has better quality, and Google gives a good enough answer to almost every query.
Operating systems:
Hard to build: expensive fixed cost that requires specialized knowhow.
Free: fixed cost of development can be supported by adjacent businesses, and zero marginal cost.
Hard for a user to try: high switch cost.
Very sticky: users buy applications and accumulate state that only works in that operating system.
Indirect network effect: More users leads to more incentive for developers to build for the platform.
Windows remains a powerful force, despite at various times Mac OS being better in every meaningful dimension.
Chatbots
Hard to build: (the UX is easy, the model is hard)
Costs money: marginal use is too expensive to support by advertising.
Easy for a user to try: at least in the free tier.
Not very sticky: state accumulates in conversations, but that state doesn't do much. The most stickiness comes from becoming a paying subscriber.
Indirect network effect: the model providers' actions imply the querystream isn't particularly valuable to increase model quality
OpenAI is the kleenex of AI - if consumers know a single model provider, they know it. And although other models arguably are higher quality now, they aren't an order of magnitude better.
OpenAI has a significant lead in subscriptions, meaning users will stay out of inertia – why try the other models when you already pay for this one, their quality isn't significantly better, and this one gives good-enough answers to most queries?
But this is not a particularly strong strategic position like a gravity well, just a kind of "shrug I guess I'll stay with this one because it's easier" advantage.
Interesting that the advantage to the first mover is so weak in this context! We're in the very early innings, lots of things could change.
This doesn't imply another Google, but maybe something like an Expedia.