VCs share insights on why the majority of consumer AI startups have yet to achieve lasting impact

The Current Landscape of Consumer AI Startups

Despite the surge in generative AI over the past three years, the majority of AI startups continue to generate revenue by catering to businesses rather than individual users.

While general-purpose language models such as ChatGPT quickly gained popularity among consumers, most niche GenAI consumer apps have yet to achieve widespread appeal.

Shifting Opportunities in AI Applications

Chi-Hua Chien, co-founder and managing partner at Goodwater Capital, remarked at a TechCrunch StrictlyVC event that early AI tools for video, audio, and images were initially impressive. However, with the release of models like Sora and Nano Banana, and the open-sourcing of video models by Chinese developers, many of these early opportunities faded away.

Chien likened these early AI apps to the flashlight apps that were popular downloads when the iPhone first launched in 2008—features that were soon absorbed into the operating system itself.

Waiting for the Next Wave of Consumer AI

He suggested that, much like the smartphone ecosystem needed time to mature before transformative apps appeared, AI platforms also require a period of stabilization before truly impactful consumer products can emerge.

“We’re approaching a moment similar to the 2009-2010 era of mobile,” Chien observed, referencing the rise of major mobile-first companies like Uber and Airbnb during that time.

Chien pointed to Google’s Gemini reaching a technological level comparable to ChatGPT as a sign that this stabilization may be underway.

The “Awkward Middle” of Consumer AI

Elizabeth Weil, founder and partner at Scribble Ventures, agreed with Chien’s assessment, describing the current phase of consumer AI as an “awkward teenage middle ground.”

What will it take for consumer AI startups to truly mature? A new kind of device might be necessary—one that goes beyond the smartphone.

Chien noted, “It’s unlikely that a device you check hundreds of times a day, but that only perceives a small fraction of your environment, will be the platform that unlocks AI’s full potential.”

Beyond the Smartphone: The Search for New Devices

Weil concurred, arguing that smartphones are inherently limited for reimagining consumer AI because they are not seamlessly integrated into our surroundings. Displaying her iPhone to the audience, she remarked, “I doubt we’ll be building for this in five years.”

Both startups and established tech giants are racing to develop the next personal device that could replace the smartphone. OpenAI, in collaboration with Apple’s former design chief Jonny Ive, is rumored to be working on a compact, screenless device. Meta’s Ray-Ban smart glasses utilize a wristband that recognizes subtle hand movements. Meanwhile, various startups are experimenting—often with mixed results—with AI-powered pins, pendants, and rings that function differently from traditional smartphones.

AI Products Without New Devices

Not all consumer AI innovations will rely on new hardware. Chien proposed that a personalized AI financial advisor, tailored to individual needs, could be delivered as a service. Weil envisions an ever-present, customized AI tutor becoming commonplace, accessible directly from a smartphone.

Skepticism Around AI-Powered Social Networks

Despite their enthusiasm for AI’s possibilities, both Weil and Chien expressed doubts about the viability of emerging, secretive AI-driven social network startups. Chien explained that these platforms are building environments where thousands of AI bots interact with users’ content.

“This approach turns social networking into a single-player experience. I’m not convinced it will succeed,” he said. “People are drawn to social platforms because they know there are real humans on the other end.”