Which types of companies will benefit first from AI?

The rise of AI in business: Digital native companies are poised to be the first beneficiaries of artificial intelligence technologies, particularly generative AI, due to their inherent technological advantages and developer-centric culture.

• Despite some impatience from media and executives regarding AI’s return on investment, many large firms across the US and Europe are actively exploring numerous generative AI use cases.
• The focus is primarily on generative AI based on large language models, which gained widespread attention following the release of ChatGPT in November 2022.

Digital natives’ structural advantage: Companies with digital technologies at their core and software as a key component of their customer service have historically been better positioned to benefit from technological advancements.

• W. Brian Arthur’s 1996 observation highlights a bifurcation in the business world between traditional industrial companies and those operating in a “world of complexity” dominated by network effects and increasing returns.
• A McKinsey report revealed that 36% of digital natives achieved an average compound annual growth rate of 25% or more in organic revenue over three years, compared to only 5% of traditional incumbents.
• Investors recognize this advantage, reflected in the high Present Value of Growth Opportunities rates for digital native companies.

The developer factor: The key advantage digital natives have in leveraging AI, particularly generative AI, lies in their developer-centric workforce.

• Developers in digital native companies are likely to be more familiar with AI technologies and better equipped to integrate them into existing systems and workflows.
• The culture of continuous learning and experimentation in digital native companies allows for faster adoption and adaptation of new AI tools and techniques.

Broader implications: As AI technologies, especially generative AI, continue to evolve, the gap between digital natives and traditional companies may widen further, potentially reshaping entire industries and market dynamics.

• Companies that fail to adapt quickly to AI-driven innovations may find themselves at a significant competitive disadvantage in the near future.
• The ability to effectively integrate AI into business processes and customer-facing applications could become a key differentiator in various sectors.

Looking ahead: While digital natives are currently positioned to benefit first from AI advancements, traditional companies can take steps to improve their preparedness and competitiveness in the AI-driven landscape.

• Investing in developer talent and fostering a culture of technological innovation could help traditional companies bridge the gap with digital natives.
• Partnerships with AI-focused startups or technology providers might offer a faster route to AI integration for companies lacking in-house expertise.
• Rethinking business models and processes to become more software-centric could position traditional companies to better leverage AI technologies in the future.