Foundation models will commoditize, shifting value up
The guest argues that foundation models and chatbots are not sustainable standalone products and will commoditize, shifting ultimate market value up the stack to applications and operating systems.
The argument
Benedict Evans argues that foundation models lack sustainable differentiation or network effects, comparing them to telecom infrastructure or ISPs that spent massive CapEx but failed to capture the value created by the platforms built on top of them.
The thesis, stress-tested
✓ What validates it
- ✓Foundation model pricing continues to decline toward marginal cost
- ✓Enterprise spend shifts heavily from model APIs to proprietary application wrappers
▸ Risks discussed
- ▸Application layers may fail to find sustainable monetization models
- ▸A single foundation model provider could achieve a breakthrough that creates a natural monopoly
Hear it yourself
"I'm not sure how how how old you are, but, like, you know, anyone in their thirties doesn't really remember a time when it was completely normal that you'd be working and then everything on the screen would just freeze and you just have to crawl under your desk and unplug the computer and then pray that, like, some of what you've done in the last hour might still be there. That just doesn't happen anymore. Go back to, you know, the eighties and, like, you bought a sound card. Well, that's $300. You won't have sound on your computer. Okay. That's $300, and it's like a that's the weekend to make that work."
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