Skip to main content

Vertical Integration

Bundling or unbundling of services is a common strategy in the tech industry. Vertical integration is a strategy where a company expands its operations to control multiple stages of the supply chain, from production to distribution. With the growing advancements in AI, businesses can leverage this technology to improve their vertical integration efforts.

Opportunities​

Opportunities for vertical integration with DePIN tech:

  • Supply chain optimization: AI can help companies optimize their supply chains by predicting demand, managing inventory, and automating procurement processes. This can reduce lead times, minimize stockouts and overstocks, and improve overall efficiency.
  • Production planning and automation: AI-powered tools can help organizations create better production schedules, optimize resource allocation, and enhance quality control. They can also support the implementation of smart factories, where AI-driven robots and machines are used to increase productivity and reduce operational costs.
  • Enhanced R&D capabilities: AI can help businesses accelerate their research and development efforts by automating data analysis, identifying trends, and generating insights. This can speed up innovation, improve product quality, and reduce time-to-market.
  • Personalized marketing and sales: AI-driven marketing and sales tools can analyze customer behavior and preferences, enabling businesses to create personalized marketing campaigns and product recommendations. This can help them increase customer satisfaction, loyalty, and revenue.
  • Improved customer service: AI-powered chatbots and virtual assistants can help organizations offer round-the-clock customer support and improve the overall customer experience. They can handle routine queries, provide personalized assistance, and escalate complex issues to human agents when necessary
  • Data-driven decision-making: AI can help organizations make data-driven decisions by processing vast amounts of data and providing actionable insights. This can lead to more informed choices and better overall business performance.
  • Talent acquisition and management: AI can streamline the recruitment process by automating resume screening, candidate assessment, and interview scheduling. It can also help organizations identify skill gaps, personalize employee training, and improve workforce management.

See Full-Stack Startups for verticals where technology contributes heavily to operational efficiency and competitive advantage:

See DePIN Engineering

Vertical AI​

There is tremendous disruptive potential as language models cross key capability thresholds for products that fully handle the complexities and edge cases to actually solve customer problems end-to-end.

Building a successful vertical AI application requires

  1. Deep iteration on prompts and workflows
  2. Deep integration of business domain expertise
  3. Rigorous testing to ensure outcomes are aligned with expectations with 100% reliability

Data sources for vertical AI applications include

  • Domain-specific integrations
  • Proprietary datasets
  • Customer-specific connections

Impact​

  • CoCounsel is an AI legal assistant that can engage in dialogue, analyze millions of documents for evidence, and put together well-researched memos - tasks that would take lawyers days.
  • When customers saw private demos of CoCounsel pre-release, they had an existential crisis, realizing this would fundamentally change legal work.

Potential​

GPT-4 demonstrated a step-change in capabilities over GPT-3 by going from the 10th percentile performance on the bar exam to 90th percentile.

  • Anthropic's Constitutional AI (CAI) is even more impressive in its ability to engage in precise, detailed analysis, catching subtle logical flaws that previous models would miss.
  • The future of prompting is not just about providing examples of good outputs, but teaching the model expert domain-specific reasoning processes.

Vertical SaaS​

VSaaS refers to software solutions tailored to specific industries or verticals.

  • The first wave of VSaaS brought services online, while the second wave integrated fintech solutions, increasing revenue per customer by 2-5x.
  • The third wave of VSaaS, which combines cloud, fintech, and AI, is the most impactful. It expands the capabilities of VSaaS by turning labour into software.
  • AI enables VSaaS companies to take on tasks previously too complex for software, such as marketing, sales, customer service, operations, and finance.
  • By incorporating AI, businesses using VSaaS can significantly reduce internal and external labour costs for non-strategic roles.
  • As an example Mindbody serves fitness and beauty studios, to illustrate how AI can augment or replace various business functions.
  • AI is expected to further increase the revenue per customer for VSaaS companies by an additional 2-10x.
  • AI will not only increase revenue per customer but also open up opportunities in adjacent markets previously considered too small or not cost-efficient for customer acquisition.

See SaaS Products for more related analysis.