“History doesn't repeat itself but it often rhymes.”
That’s one of my favourite quotes, and it’s useful when thinking about how the impact of “new things” today might rhyme with the impact of “new things” from times gone by.
The “new thing” the world is focusing on right now is AI, and for good reason. The pace of AI innovation is unlike anything we have ever seen. Crypto in 2018-20ish had a similar amount of chatter, announcements and new product launches, but the leaps in innovation and actual utility for the everyday consumer were much less profound. With AI, we’ve gone from the launch of a text-based chatbot in November 2022 from a company most people had never heard of, to an extraordinary universe of products that feel like magic and are already saving time and money for millions of users.
So what might be the rhymes to listen out for?
Throughout history, technology has both grown existing markets and created new ones. The logic is straightforward: technology enables increases in the utility and/or decreases in the cost of a product or service, thereby unlocking demand for a bigger proportion of the market to buy it. Even if the price per unit goes down, the influx of new demand more than offsets it, and the market grows overall. There are plenty of places where we’ve seen that play out.
Some of the biggest markets today for physical products (smartphones, computers, wearables) were once restricted to a small sliver of the population by prohibitively high costs and underwhelming utility. The first PC, released in 1971, cost $750 (just shy of $6,000 in 2024 terms), had only lights and switches for input/output, and stored only 256 bytes of data. 40 were sold. Today you can get a sophisticated laptop the size of a magazine for a few hundred pounds, and roughly 250m PCs are sold each year.
We’ve heard this rhyme in the technology disruption of marketplaces, too. The late 2000s and early 2010s saw a wave of ‘gig economy’ platforms enabling new business models for peer-to-peer services. New technology (GPS, smartphones, etc.) allowed demand and supply to be matched more efficiently and dynamically, increasing availability and reducing cost, and driving up demand and adoption. In just fifteen years, Uber has grown to ~$70bn in annual Gross Mobility Bookings and in the same period AirBnB has become a global hospitality disruptor with annual Gross Bookings now ~3x the revenue of Marriott International, the largest hotel chain in the world.
AI is now disrupting the market for knowledge work and there will be the same rhyme of market creation this time - and perhaps even louder. We think there are at least four factors that might make things move even further, even faster, with AI.
First, AI can execute vast swathes of existing knowledge work not just better, cheaper and faster, but all of them at the same time: a powerful combination for unlocking new demand. Second, as mentioned above, innovation is happening at a truly unprecedented pace reshaping the art of the possible (and therefore the urgency to adopt and experiment) on what feels like a weekly basis. Third, unlike the classic Innovators’ Dilemma described by Clayton Christensen where the disruptive tech goes largely ignored by incumbents until it’s too late, AI is front-and-centre of the strategies of the world’s largest companies, which will drive mainstream adoption even faster as those companies leverage existing brands and distribution to get AI tools in the hands of users. And finally, a supply side transitioning from the real constraint of human labour towards software itself means effectively unlimited supply scalability.
So how might this impact investing in consumer technology?
One idea that excites us at True is the creation of entirely new consumer markets. We think AI unlocks the ‘consumerfication’ of markets that have historically been constrained to businesses and the wealthy.
To illustrate, take legal services: a space not exactly synonymous with great consumer experiences!
The cost of a lawyer is prohibitively high for most people in most situations. Outside of major life events (buying a home, getting a divorce, etc.) it’s rare that an average consumer will interact with a legal professional in a given year. But AI could enable greater access and frequency of use given its fundamentally lower cost structure. Consider the possibility of a consumer turning to an LLM trained on the relevant body of law and, for the cost of a coffee, answering basic questions. What are my rights in this situation? Is it worth engaging a human lawyer to pursue my case? Can you draft me a letter outlining my complaint to my landlord, outlining relevant clauses of my tenancy agreement and any supportive statute and case law?
Let’s not get carried away. It will be a while - if ever - before AI can handle complicated matters of law, let alone replicate the trust that is so important for the lawyer-client relationship. Humans in the loop will play a key role for a long time to come. But we think there could be a newly-enabled opportunity to address latent demand - the long tail use cases currently not economically viable to do with a real lawyer - with AI. We think it’s entirely reasonable that we could soon be in a world where the average consumer has a basic lawyer in their pocket.
Legal services is just an illustrative example. We think the thematic of new consumer markets will apply across multiple aspects of everyday life.
How big could these new markets be? The truth is, nobody really knows. When new markets are created, they are famously difficult to estimate, and even clever people can end up looking silly in hindsight. In the 1980s, McKinsey famously estimated there would be 900,000 total global cell phone users by the turn of the millennium (in fact by 1999 there were 900,000 new users every three days). And predictions are not always wrong to the upside: Steve Jobs proclaimed in 2001 that the Segway mobility device would be “as important as the personal computer,” yet now they are mostly confined to touristy gimmicks.
But the good thing about consumer markets is that the winners can indeed be much, much bigger than anyone imagined. Given the scale of the potential enabled by AI, we think there are multiple multibillion dollar opportunities to be created in the coming years.
All that makes it an exciting time for us as a consumer specialist investor. We are actively seeking opportunities to apply our expertise and network to fundamentally new consumer markets. If you’re founding or investing in companies that are building the potential consumer markets of the future, we’d love to meet you, so please get in touch.
