July 19, 2024
OpenAI ChatGPT

Startups Experience the Pitfalls of Relying on OpenAI’s Technology

Technology advancements have always played a vital role in shaping startup ecosystems. The recent update to OpenAI’s ChatGPT, which enables users to upload PDFs and ask questions about them, has sent shockwaves throughout the startup community. While this may seem like progress, it also presents a predictable threat to many companies, especially those known as “wrapper startups” that have built their business models around a feature gap in ChatGPT.

Wrapper startups offer a service by “wrapping” around an API such as ChatGPT, utilizing the underlying technology to provide a service that is not directly available through the API. However, the recent update to ChatGPT reveals the vulnerability of these startups. In an instant, their unique selling proposition can be rendered obsolete by a simple feature update from the technology provider.

This situation is not entirely new or surprising. Startups frequently build their success by extending the features and functionalities of larger corporations, sometimes even securing billion-dollar valuations. The expectation is that these corporate giants will recognize the value of the startup’s innovations and choose to acquire them. Unfortunately, this plan often fails in explosive and unexpected ways.

The reliance on an external API or technology can be a double-edged sword for startups. On one hand, it allows them to quickly develop novel solutions and bring them to the market. On the other hand, this dependence leaves them vulnerable to the whims and developments of the underlying technology. In the case of ChatGPT, startups relying on its previous limitations to provide unique services are now at risk of becoming redundant.

This situation highlights a crucial lesson for founders and investors alike: a sustainable company with its own solid, stand-alone product will always have an advantage over those built around a third-party technology. While wrapper startups may initially gain traction by capitalizing on feature gaps, their long-term viability depends on their ability to innovate and differentiate themselves from the underlying technology provider.

To mitigate the risks associated with relying on external technologies, startups should focus on developing their own proprietary solutions. This approach not only allows them to control their destiny but also provides a foundation for growth and sustainability. It ensures that they are not at the mercy of feature updates or changes made by the technology providers they depend on.

Furthermore, startups need to be agile and adaptable. The rapid pace of technological advancements demands constant innovation and the ability to pivot when necessary. By staying ahead of the curve and continuously improving their offerings, startups can maintain their competitive edge even in the face of evolving technologies.

While the allure of building a startup around an existing technology may be enticing, it comes with inherent risks. Startups must carefully evaluate the potential pitfalls and consider the long-term implications of relying solely on a third-party technology. By prioritizing the development of their own stand-alone product, they can create a foundation for success that is independent of external factors and market changes.

In conclusion, the recent update to OpenAI’s ChatGPT should serve as a wake-up call for startups. It highlights the importance of building a sustainable company with its own unique product. Relying on external technologies may provide short-term gains, but in the long run, it can lead to vulnerability and potential obsolescence. To thrive in today’s rapidly evolving landscape, startups must prioritize innovation, differentiation, and the development of their own proprietary solutions.

1. Source: Coherent Market Insights, Public sources, Desk research
2. We have leveraged AI tools to mine information and compile it