Inc. Magazine
As generative AI gains traction, businesses must evaluate its potential. Leaders should assess if AI addresses customer needs, creates sustainable revenue, offers substantial value, threatens their business model, and if they can bridge capability gaps. If these conditions are met, AI could drive significant growth and innovation.
5 Tests to Determine Whether Your Business Actually Needs AI
Author: Peter Cohan
What should your company do about generative AI? Should you ignore AI chatbots or use them every day? Is generative AI critical to the growth of your business or irrelevant?
The case favoring daily use of AI chatbots and building generative AI into your business is based largely on fear of falling behind the wave of hype. Goldman Sachs and McKinsey have supplied forecasts of how much the technology will boost economic growth, increase productivity, and replace jobs, as described in my book, Brain Rush.
The case for waiting strikes me as fairly strong. Companies are expected to spend $1 trillion on building up their generative AI capabilities. Yet no killer app—such as the iTunes store, which drove six-fold growth in iPod sales—has emerged for AI chatbots.
This comes to mind when considering Amazon’s decision to invest $100 billion in AI in 2025, according to the company’s February 6 earnings report. “Virtually every application that we know of today is going to be reinvented with AI inside of it. AI is probably the biggest technology shift and opportunity in business since the internet,” Amazon CEO Andy Jassy said on the analyst call.
Amazon, Google, Meta, and Microsoft cumulatively intend to invest $320 billion for data centers, AI chips, and other related infrastructure in 2025, according to the Wall Street Journal.
Yet investors gave most of them the Bronx cheer. While shares of Meta gained 7 percent following the company’s earnings report, the value of stock in Amazon, Alphabet, and Microsoft fell 4 percent, 7 percent, and 6 percent, respectively, following the release of their latest results, noted the Journal.
Jassy could be overestimating the economic impact of generative AI compared to the internet.
How so? I asked the Babson College students in my Generative AI for Business Growth and Strategy class to evaluate the social and economic impact of three new technologies near the beginning of their runs—the internet in 1998, blockchain in 2011, and generative AI in 2023.
Based on an analysis of five questions, my students ranked the internet and generative AI highest—with blockchain lagging. One obvious reason the internet and generative AI came out ahead of blockchain is the difference in their target audiences. Consumers have found value from the internet and are exploring many ways AI chatbots can help them.
Blockchain sounds good for businesses aiming to use the technology in theory. However, as Maersk’s shuttered blockchain initiative reveals, the potential efficiency of using blockchain throughout the supply chain would only have been achievable if all participants implemented the technology. For many such participants, the costs far exceeded the benefits.
So when it comes to AI, how can businesses make sure they’re taking proper advantage and not chasing a shiny object? Leaders should ask these five questions:
1. Does the technology relieve customer pain? During the pandemic, the internet helped many companies keep operating—including retailers, restaurants, and most businesses where workers could work remotely. AI chatbots strike me as helping people overcome relatively less critical pain—such as overcoming creator’s block.
2. Will customers pay enough for the technology to be a sustainable business? With the exception of Nvidia, which earns a whopping 55 percent net profit margin, and AWS, which contributes half of Amazon’s profit, most generative AI technology and service suppliers are not making money.
While much of the internet is given away for free, the advertising businesses tied to the resulting attention have proven very profitable for Google, Meta, and others.
3. Will the technology deliver a quantum value leap—e.g., a ten-fold spike in the ratio of benefits to price? When it came to selling books online, Amazon’s first internet foray made a much wider selection of books with helpful customer reviews available to consumers at a lower price.
Generative AI—especially Notebook LM—can summarize long documents in seconds, which saves people significant reading time.
4. Will ignoring the technology threaten a company’s current business model? During the dot-com boom, many incumbents monitored the internet but did not take effective action—this has doomed most newspapers and magazines. By contrast, few companies are ignoring generative AI now.
5. Can a company close the capability gap to capture the growth opportunity? During the internet era, many established companies were eventually able to build the capabilities needed to sell online and in person. Companies are still discovering whether AI chatbots can meaningfully improve their operations.
If you answer “Yes” to all these questions, plow ahead with generative AI.
Credits: TCA, LLC.