This is what happens to:
• one/few-feature(s) startups • that play in crowded categories
• with little/no technological barrier to entry and
• no perceptual brand distinctiveness.
As a services provider, ChatGPT has created quite a shake in the world of startups. While there are a plethora of OpenAI-based tools available for those looking to improve their writing skills and have content generated for them with little human input, those are all paid tools.
ChatGPT has set itself apart by making it the only tool that allows users to iterate their prompt successively. On top of that, the tool is absolutely free for now. The result? ChatGPT obliterated the competition - specifically, those startups that use OpenAI's GPT3 to provide generic writing tools. And OpenAI became a provider that transformed itself into its customers' unbeatable competitor.
One of the reasons this was possible is the lack of technological barriers to entry for the category. Many of these customers added no or little value to what OpenAI provided and didn't have unreplicable proprietary technology.
Successful startups rely on a combination of complex algorithms, proprietary technology to provide their services, and distinct brand identities, making it difficult for the average user to grasp how they work and get into the same line of business.
Plugging in OpenAI, on the other hand, has a much more straightforward approach, making it easy for many to understand and use to create text-generation startups.
In addition to the lack of technological barriers to entry, most of these content generation tools lack brand distinctiveness and positioning differentiation, making them unfit to stand out in a crowded market.
In short, OpenAI has made a bold move by turning from a services provider to its clients' most potent competitor. ChatGPT is still in development, and it's impossible to say whether or not it will remain free forever and whether or not its technological advantage will hold. But, as things stand now, there is no justification for paying for other tools in this space.
Turns out, jumping on a low-barrier technological solution and only offering customers a neat UI was not a revenue moat but a tech dependency trap.
You can avoid such traps by creating well-rounded tech solutions accompanied by distinct category positioning and a brand that stands out.
