In the evolving landscape of artificial intelligence (AI), it’s clear that the spotlight is shifting from technological infrastructure to applications. While language models, chips, and sophisticated frameworks remain crucial, an increasingly compelling investment thesis highlights that the true value of AI lies in applications, particularly in the realm of vertical AI software. This perspective was notably underscored during the recent AI Week event by Langoustia Capital, which illustrated a significant transition from mere infrastructure to the products that genuinely transform everyday practices.
From Hardware to Software: A Lesson from the ’90s
In the technology boom of the 1980s and 90s, hardware companies like HP, IBM, and Cisco played central roles, establishing the data centers and networks that facilitated the digital revolution. Yet, as time progressed, the competitive landscape altered dramatically. Hardware infrastructure no longer provided the distinctive edge it once did; margins dwindled as products evolved into commodities.
Conversely, the victors of this era emerged from the software realm—companies such as Google, Microsoft, and Amazon redefined their respective sectors. Google revolutionized information retrieval and monetization; Microsoft built a scalable operating ecosystem; and Amazon innovated e-commerce and cloud solutions. Just as these software platforms reshaped the technological narrative of the late 20th century, we now observe a similar pattern repeating in today’s AI revolution.
What is Vertical AI Software?
Vertical AI software refers to applications specifically designed to address defined issues within specific sectors. Distinct from more general AI solutions, these tools are tailored to seamlessly integrate into the workflows of professionals, companies, and entire industries. The focus is on offering intelligent automation that enhances efficiency while saving time and resources.
Examples of vertical AI currently making waves include:
- Harvey: This tool automates legal consulting processes to enhance law firm operations.
- TaxGPT: An AI copilot targeted at assisting tax advisors and accountants in their work.
- Toast: A comprehensive platform designed for the restaurant industry that merges point-of-sale systems with operational management.
- ServiceTitan: A management platform aimed at empowering craftsmen and technicians in managing their businesses.
- Cybergrant: An emerging startup focused on enhancing cybersecurity solutions.
These innovative tools blend industry expertise with intelligent automation, providing a fertile ground for efficiency, cost-savings, and scalability.
Why Vertical AI Software is the New Frontier of Innovation
According to Langoustia Capital, the future giants of the AI space will not solely be those who build advanced AI models. Rather, it is the entities capable of applying AI in a targeted, effective manner that will lead the charge. Several notable trends underscore this thesis:
- Defensibility: Vertical applications are often fortified by their reliance on specialized domain knowledge, creating barriers to entry and fostering client relationships.
- Scalability: These solutions tend to scale efficiently due to standardized processes, allowing for widespread adoption without excessive adjustments.
- Return on Investments: Successful vertical AI applications boast impressive returns for investors. For instance, Toast achieved a staggering 160x return for its early backers.
Bearing these factors in mind, the combination of vertical software and AI emerges as an incredibly promising avenue for startups, funds, and established companies seeking genuine growth in a competitive landscape.
Langoustia Capital: Investing in AI Applications
Langoustia Capital, a fund dedicated to the application layer of artificial intelligence, plays an instrumental role in this evolution by focusing on the development and support of AI-powered software solutions. With a presence in San Francisco, Miami, New York, and Milan, Langoustia Capital represents a collaboration between the Del Vecchio family (associated with Luxottica) and aims to bridge the best startups from Europe and the United States.
Within just a year, Langoustia Capital accomplished several impressive feats:
- It invested in 11 vertical AI startups.
- Achieved an internal rate of return (IRR) greater than 150%.
- Established a comprehensive global network of venture partners and co-investors.
The overarching goal is to unearth and nurture the next “Meta” or “Amazon” within the AI sector, focusing on intelligent applications that can drive substantial transformations in real-world industries.
Conclusion: From Generalist AI to Specialized Software
The ever-growing AI market may be crowded, but the path to success lies in crafting concrete, integrable, and measurable vertical products that can stand out from the crowd. Langoustia Capital’s strategy emphasizes an unwavering focus on artificial intelligence that addresses specific challenges, creates tangible value, and yields sustainable returns.
In this shifting paradigm, the future of AI is no longer confined to laboratory settings or speculative technologies. Instead, it is rooted firmly in tangible software solutions that resonate within real-world contexts. For businesses and investors alike, the message is clear: the true potential of AI will be realized not merely through cutting-edge technology but through its practical applications that drive everyday advancements across various sectors.
