Senior Investor: AI has moved past the "cool" stage and is now heading towards the "what's the use" stage, learning from the experience of the Internet.

As the funding machine for AI startups continues to roar, one of the questions we keep hearing about is: How big can this company grow? A further layer creates another set of questions:-How sticky is the product? Early acceptance of many AI applications soars, but once the "freshness" wears off, acceptance plummets. -- How is this app different from many of its kind? As the barriers to the development of new apps fall, competitors are sure to pour into the space. -Is the return on investment for new users sufficient? Replacing existing applications means learning new habits, investing time in training, and freeing up budget space. As venture capitalists, we constantly evaluate startups to determine whether they can be the next big company to change the world, or become a company with a valuation of tens of billions of dollars. While fortuitous timing and luck play an important role in any major success, a large number of success stories prove that companies often need to have some core characteristics in order to be circuit disruptors. In this week's article, we dive into what lessons we can learn from the development of the last generation of apps, and how these insights can guide new generative AI startups. According to the latest report "Businesses at Work 2023" by cloud security company Okta, let's take a look at the five most used and prolific B2B products in the world today: Microsoft 365, Salesforce, Slack, Zoom and Atlassian.! ## Microsoft 365(Office) Microsoft Office was first released by Bill Gates on COMDEX in 1988 and was originally packaged as a software suite designed for a new wave of employees who were just beginning to get familiar with computers at their desks. It initially included three applications: Excel, PowerPoint, and Word. Today, Office has grown into a Microsoft 365 with more than 0.35 billion paying users and more than a dozen widely used applications. How did they succeed? Our view:-Early innovation:Office was designed at a time when computers were becoming modern. Not only are office workers becoming more familiar with computers on their desks, but personal computers are also becoming more and more popular (a large number of new machines began to appear in the late 1970 s and 1980 s). -Workflow Solutions:Office is made up of Word, Excel, and PowerPoint applications designed to work together seamlessly to provide a comprehensive suite for a variety of office tasks, such as word processing, spreadsheet analysis, and presentation creation. This allows the user to switch between tasks without leaving the suite. -Become the" de facto "industry standard: Become the de facto standard for office productivity software through aggressive marketing, making it easier for businesses, organizations, and individuals to collaborate and share documents. Microsoft is also aggressively bringing its solutions with new computers and working directly with computer manufacturers to get them pre-installed on computers. Microsoft has also become a de facto leader in the field of personaland professional computing. -Continuous innovation: Office is constantly innovating with the times (although perhaps not all users will agree!). With the advent of cloud computing, Office transitioned to a subscription-based model. They also extend beyond the core applications and continue to dominate user workflows such as Outlook, OneNote, Publisher, and Access. Microsoft also encourages third-party developers to create new parts and extensions in Office applications to further enhance their full functionality. ## Salesforce Founded in 1999, Salesforce is currently the largest cloud-based customer relationship management (CRM) software, with a market value of more than $200B and annual revenue of more than 30B. The Salesforce suite has evolved from an initial CRM product to a multi-product suite of sales and productivity tools, built on a vast repository of customer and sales data. Our view:-Innovative cloud and SaaS models: Salesforce are important pioneers in delivering software-as-a-service through the cloud. This model enables businesses to access and use software over the Internet and eliminates the need for complex installations and lengthy setup times. They were able to support this with a subscription-based pricing model, ultimately changing the game for how most software companies deliver value. -Simple and streamlined: Competitors in this field (such as Siebel and SAP) have bulky and difficult to use interfaces. Salesforce emphasizes user experience, ease of use, and a clean product interface. This ultimately increases stickiness as the user reuses the product daily. -Comprehensive solution suite: Salesforce initially started as CRM, but over time, various cloud-based solutions (e. g., marketing, automation, customer success, analytics, etc.) have been provided outside of CRM. As a result, Salesforce have been deeply integrated into various business operations and have incurred high conversion costs (which means that products alone cannot help new CRM startups win). -Developer-friendly: Established a platform where developers can build custom applications on top of Salesforce and create a central community where Salesforce users can build and sell their applications. * ! * ## **Slack **Slack was founded in 2013 as a messaging tool for a gaming company called Tiny Speck. Over the past decade, the company has gained great popularity and has become one of the most widely used employee communication tools. They were acquired by Salesforce in 2020 for $28 billion. Our view:-Simple and user-friendly interface:Slack has always been praised for its user-friendly interface, which is easy to navigate and anyone can easily start using the platform. Slack also introduced channel organization, allowing teams to create channels for topics, projects, departments, and more. -Powerful application integration ecosystem:Slack allows users to integrate third-party applications into their workspace, allowing users to increase productivity and customize and simplify workflows. Centralized work tools and the ability to seamlessly share data and files keep users coming back to Slack, increasing stickiness. -Product-led growth and strong user viral penetration:Slack was a strong early supporter of the freemium model, which made it easy for individual users to adopt at first and ultimately increased viral penetration and large enterprise adoption. ## Zoom Founded in 2011, Zoom has become the number one video conferencing platform, beating traditional businesses such as Logitech and Webex, as well as a large number of "next generation" tools and products in product suites such as Microsoft and Google. Despite today's sharp decline in growth relative to the New Crown pandemic, Zoom remains firmly on the table of millions of knowledge workers. How did they succeed? Our view:-First-class infrastructure and reliability: Zoom is indeed the first video communication tool to provide an always-reliable meeting experience. The infrastructure is designed to handle high-quality connections, international dial-ins and large numbers of participants. Depending on your location, there will be no communication delays or quality degradation. For something as sensitive as video chat, reliability is a primary consideration. -Easy to use: The product's simplicity, intuitive "how to share" screen, and simple settings are key factors in Zoom's rapid rise. The ease of scheduling Zoom calls and joining meetings with a single click on any device (mobile, PC, iPad) is a key benefit. -Collaboration Platform:Zoom provides a "share screen" feature that enables participants to collaborate on documents, presentations, and other materials. Participants can be anywhere in the world and do not need to be paying users of Zoom (but "link sharing" is a key element of its virality). ## Atlassian Atlassian's founding story is perhaps the least unconventional compared to other leading business apps, Atlassian was founded in 2022 by two Australians trying to use software to help other support teams. Since then, Atlassian has grown from a self-reliant business with a single product (error tracking) to a $40 billion + global behemoth spanning multiple products and more than 10 million monthly active users. Our view-the groundbreaking self-service model: For most of Atlassian history, they didn't have a sales team. Instead, they focus on developing a loyal market by building best-in-class project management tools for engineering teams. Then they strategically expanded the product range through acquisitions, expanding the customer base to the development team_the team around it. This allows them to keep their marketing and marketing costs low and accumulate more gross profit to make the product better. -Thoughtful and interconnected product extensions: Atlassian initially provided a product: Jira for error tracking. Over the years, they have strategically expanded into knowledge bases (Confluence), Trello (project management), and Bitbucket (CI/CD). Throughout the expansion process, they have always placed developers at the center of the customer experience, which means that products can be seamlessly integrated and create a pleasing end-user experience. -Strategic acquisitions:Atlassian growth is not purely organic. Over the years, they have made about 20 acquisitions (e. g. Trello, OpsGenie, Chartio, etc.) that have enhanced their existing offerings and allowed them to enter new markets, effectively increasing the switching costs of abandoning Atlassian suites. Looking at these business applications used by millions of people, we can see that many common themes have emerged that apply to AI startups. -The transformation of new and innovative technologies enables the construction of disruptive applications: Each of these companies has undergone technological shifts that make the final application more accessible to various users (in many cases, this is The shift to the cloud). When the underlying enabling technologies materialize, there is a huge opportunity for a new set of applications to dominate. _Lesson for startups: Technological change doesn't happen often, but when it does, it can lead to a tsunami of results. Don't take it for granted! _ - **Using stickiness contributes to "ultimate success": **The product must exhibit eye-catching stickiness and must become a platform for end users to choose. Each of the products detailed above is typically used daily (typically multiple times a day). Products that integrate well into existing workflows help achieve this. In other words, if you remove these applications from an employee's desktop, they simply won't work. _Lessons learned from startups: Using models to generate novel or unique content is great, but it will not bring huge results in the end unless the application becomes critical to the user's daily workflow. _ - ** Integration, compatibility, and developer-friendly **** approach → **As the poet John Donne wrote" No one is an island ", similarly, no highly successful B2B application is an island. In this modern era, productivity apps need to be more than just integrated with each other, but that's the only way they can sustain and thrive. Users may find it fun to try a new product in the initial stages of the hype cycle, but unless the product is able to integrate seamlessly with the rest of their workflow, we expect a significant decline in usage after the novelty period ends. Ensuring that applications are compatible with each other (and maintaining the ultimate developer experience) is key to application success. _The lesson for startups: Don't be an island. Learn how to integrate with other productivity tools to make your app more accessible to users. _ - **Powerful UI/UX and more pleasant user experience: **Creating a pleasant experience for end users cannot be underestimated. Whether it's Zoom's "one-click join" or Slack's innovative approach to organizing synchronous communications, a great experience can lead to viral growth and ongoing engagement. Lesson for startups: What is your UX charisma? How do you ensure that customers will be deeply disappointed if they no longer use you? ## What can AI startups consider? We are at an interesting point in the generative AI hype cycle. As we detailed in our previous post, **we believe we are at the" end of the beginning "and the initial excitement of generative AI is starting from" This is so cool!" Change to "How does this help me" * *.! The slowdown in the traffic of artificial intelligence tools confirms this: in this part of the cycle, it is helpful to look at time-tested applications to determine the way forward. To this end, we believe that generation-time AI companies should consider the following questions:-What can AI and underlying model technologies achieve that traditional SaaS cannot? One of the great things about LLM and FM and related technologies is the ability of models to reason and create**new augmented outputs. **_These models can think more like humans and eventually take over the workflow. -How to cover the entire workflow and increase user stickiness? As budgets tighten, the ability to purchase another tool is facing challenges. Having "cool" products that don't increase productivity or show ROI will be challenging. AI tools that replace and enhance existing workflows while reducing the time and resources required to complete tasks will win. -Is there a new business model for deploying AI compared to traditional SaaS? We have seen many innovations in the open source model and API as a service. Is there a way to take advantage of the switching costs associated with building models? What new business models may emerge?-Can we move to value-based pricing? The shift from seat-based pricing models to consumption-based pricing models is driven by customers discovering value driven by usage and headcount. Given that many GenAI applications will drive value from the quality of the output they generate, should we move to a value-based pricing model. -How can I integrate and cooperate with the surrounding ecosystem? In short, artificial intelligence applications that are isolated from the rest of the knowledge worker toolkit will die. Part of the reason why every business application that successfully made the top 10 in terms of usage was that it "worked well" with other productivity tools ". As an AI application, what is the best way to create links with legacy and novel applications that my target audience may use? While the initial excitement for new AI applications in the workforce is starting to slow down, we believe this is ultimately a good thing for the ecosystem as new, strong, useful, and powerful enterprise-grade companies will emerge. It's useful to know how some of the best B2B applications on the market today are built. The question is: **How many applications will be replaced by AI tools? * *