The New Business of AI (and How It's Different From Traditional Software) | Andreessen Horowitz

However, we have noticed in many cases that AI companies simply don’t have the same economic construction as software businesses. At times, they can even look more like traditional services companies. In particular, many AI companies have:

Lower gross margins due to heavy cloud infrastructure usage and ongoing human support;

Anecdotally, we have seen a surprisingly consistent pattern in the financial data of AI companies, with gross margins often in the 50-60% range – well below the 60-80%+ benchmark for comparable SaaS businesses. Early-stage private capital can hide these inefficiencies in the short term, especially as some investors push for growth over profitabilit... See more

Weaker defensive moats due to the commoditization of AI models and challenges with data network effects.