The CQ | The Ironic Winners of AI? Peoples Businesses
Plus the Forerunner Team's Must-Reads of the Week
The CQ is Forerunner’s weekly newsletter rounding up the most pressing consumer news and analysis, plus some bonus musings from our investment team. Subscribe now to get the latest edition in your inbox every weekend.
The Emergence of AI-Powered Services Firms
"Selling outputs" has become the craze in the AI race. The concept is based on a new crop of startups popping up to sell AI-driven knowledge work into service firms, alleviating pros of what’s often considered legwork and enabling them to focus more on the subjective, strategic parts of the business. At Forerunner, we’ve seen more tax advisory based startups this year than in our whole 10+ prior years combined.
This approach deserves the attention it's getting: it has potential to make service firms dramatically more efficient, and it has the potential to upend SaaS’s traditional seat-based pricing (the lifeblood of Silicon Valley) by instead pricing based on the relative work produced over usage.
But in our view, this model falls one step short of the larger opportunity. We believe that many of the future AI winners will actually look more like historical offline stalwarts of the services world than the sexier SaaS-powered solutions that have dominated the past decade.
Why? As AI technology matures and prompting becomes much simpler, AI-driven knowledge work will reliably move up the stack to handle much more nuanced tasks — making AI-driven outputs more of a commodity than a proprietary edge. There will thus be far less value in selling AI outputs to firms, and far greater incentive for new firms to centralize AI in-house alongside the irreplaceable, uniquely human parts of the business. It’s a typical middleman dilemma: when tech developments become more advanced and commoditized, the solutions providing them often get squeezed as the functionality is rolled into broad suites of services.
So perhaps ironically, the biggest winners of the AI shift may be the services businesses that rely on humans. We see a world of opportunity for new AI-Native Services Firms that centralize AI productivity in-house and create law firms, health navigators, financial advisors and recruitment firms that are suddenly venture scale thanks to their AI-driven efficiency — and the new business models and pricing that AI can afford. Think: law firms with outcome-based fees vs. billable hours, financial advisors with modest fixed membership fees vs. % of AUM.
Put another way: rather than sell research tools to Goldman Sachs, we believe it's better to try to be the next AI-driven Goldman Sachs. Instead of selling to KPMG, be the next KPMG. The AI wave could be a unique shift where it’s actually more valuable to be the full-stack provider than to sell picks and shovels.
For more on our belief in AI-Native Services, see Brian and Alex’s new thesis: Be the Firm.
And for more from this side of the world, see Kirsten’s perspective on how AI is driving an evolution in discovery, where search giants stand to lose market share to new personal, actionable services.
What We’re Talking About on Slack:
The ‘funflation’ effect: Why Americans are spending so much on travel and entertainment. Despite the increasing price of live events—admission to sporting events are up 21.7%, while movies, theaters, and concerts rose 3% in about a year—38% of adults said they intend to take on more debt to travel, dine out and see live entertainment in months ahead. Nearly three-quarters of Gen Zers said they would prefer a better quality of life than saving money.
More evidence that younger Americans are set to have a summer of fun, no matter the financial costs. A study by Credit Karma found that roughly a third of Gen Zers and millennials said their summer goals are more about having fun than saving money. Nearly 40% of them said they intend to travel regardless of their financial situation—with 23% of Gen Z and 25% of millennials willing to take on $2,000 in debt and 11% of Gen Z and 8% of millennials expecting $4,000 in debt. To help pay for travel, over 20% of them will use credit card rewards and miles, 13% will open a new travel or rewards account, and 16% will rely on BNPL. “Despite the fact that many consumers are struggling to keep up with their finances at a time when travel costs are on the rise, many young people aren’t willing to put a price tag on the fun and adventure they seek out during the summer months. Factor in social media, the temptation to spend money grows.”
How else are they funding their lifestyles? Gen Z and millennials’ spending habits fuel dependence on ‘Bank of Mom and Dad.’ According to a survey conducted by Axios and The Harris Poll, one-third of millennials and over 60% of Gen Z’ers rely on their parents for some financial support. Of those who get help from their parents, about 65% say they blow their budget because they overspend on non-essentials. Nearly half chalk up their overspending to FOMO and 43% say they’re trying to keep up with their friends.
Sports are the new dating apps, says The Cut. Bumble and Hinge fatigue are driving singles to join running clubs or pickleball and hockey leagues to meet people IRL. A lot of these sports groups are subtly (or not so subtly) targeted towards singles who find them less daunting than the typical bar and online dating scene — with post game happy hours and events While the concept of meeting people over shared interests isn’t new, for younger audiences who know online dating as the primary way to meet a match, the concept feels energizing and fresh.
As more people try to cut back in the face of rising inflation, companies like P&G, Unilever, and Edgewell are turning to a new strategy to boost sales: ‘Upflation,’ the latest retail trend driving up prices for U.S. consumers. Brands are introducing twists on products with new uses—think: intimate razors and all-body deodorants—and upcharging for them. “The high cost of these items may seem counterintuitive for brands trying to reach consumers who are cutting back to save money. But the new uses allow companies to market these items as premium products and to differentiate from the CVS, Walgreens or Amazon versions that sell for cheaper. Consumers are willing to pay for innovation. And, even if fewer people buy them, they end up boosting revenue because of the high price tag.”
Rolling Stone takes a look at unschooling, “the parenting trend that’s pissing everyone off.” Unschooling is a form of self-directed education without teachers, classes, or curriculums—“children learn what they are naturally curious about.” Though it has become increasingly popular on social media, there’s no conclusive data about how many parents are choosing to unschool their kids, but one professor estimates that 20% of the 3 million U.S. homeschoolers are unschoolers, while Google searches for the term have increased 22% over the past month. Opponents say that parents who unschool their children “are misguided at best” and worry that kids are missing out on socialization.
Consumers feel stuck—and the implications for retail are huge. WWD explains how the “stuck-in-the-middle consumer” may feel OK now, but is worried about their future, burned out by politics, stressed over the state of the world, and wants sustainability yet feels guilty if they buy an extra shirt. An Ernst & Young exec points out that customers feeling environmentally conflicted about wanting to buy a top that they may only wear once may hurt brands in the long run. “If the consumer feels guilty about buying your product, if they have to justify it, it’s not a long-term strategy. You may still be able to eke out a little bit more of the cash cow, but there’s so many weak signals that demonstrate the longer term strategy is more about the quality things that are going to last.”
The AI boom has an unlikely early winner: wonky consultants. Companies including Boston Consulting Group, McKinsey & Company, IBM, and Accenture, are getting a boost from “desperate” businesses seeking their expertise on navigating how generative AI can streamline their work and improve their bottom line. Consultants may advise companies on regulatory compliance for regions that pass laws regulating artificial intelligence, on formulating A.I. customer support systems, or developing guardrails to prevent A.I. systems from making errors. So far, “results have been mixed.”
RTO mandates are killing the euphoric work-life balance some moms found, Bloomberg reports. Now it’s estimated that about 80% of companies have a return-to-office mandate, with two to three days being most common, leaving many mothers scrambling for child care or just throwing in the towel. This year, two-thirds of American moms say they’ve considered quitting their jobs. Bloomberg argues that this could deepen the motherhood penalty, pushing women out of more high-paying jobs and industries and broadening the pay gap between women and men.
AI is helping scammers outsmart you—and your bank. People reported losing $10 billion to scams in 2023, up from $9 billion the year before, according to the FTC, which estimates that only 5% of fraud victims report their losses so the actual number could be around $200 billion. Scammers’ tactics are becoming much more sophisticated, using AI to imitate your voice or impersonate others, unearth personal information from social media to make their attempts more convincing, and create computer-generated faces and graphics to pass identity-verification processes. According to an April survey of 600 fraud-management officials, 70% said criminals were more skilled at using AI for financial crime than banks are at using it for prevention.
Portfolio Highlights:
Daydream CEO Julie Bornstein is profiled in Inc.
Bloomberg chronicles the success story of Glossier’s You fragrance.
noplace, a new social media app that’s recreating MySpace and Twitter for Gen Z, hits #1 in the App Store, as profiled by TechCrunch.
Brad Hiranaga, Cotopaxi’s chief brand officer, and Vineet Mehra, Chime's CMO, make Business Insider’s list of most innovative CMOs of 2024.
Forbes recognizes Topline Pro cofounders Nick Ornitz and Shannon Kay as 30 Under 30 in enterprise technology.
Wonder founder and CEO Marc Lore makes an appearance on Accel’s Spotlight On.
Oura CEO Tom Hale speaks to CNBC about why the company bought an ad spot during the presidential debate and how Oura Ring wearers’ heart rates spiked at the start of the debate.
Ami Vora, Faire’s CPO, visits Lenny’s Podcast to discuss the lessons she learned leading product teams.
On MindBodyGreen’s Clean Beauty School podcast, Ritual’s chief impact officer Lindsay Dahl talks about the industry’s greenwashing.
Fast Company writes about Glossier’s new logo for its summer collection.
Away’s expansion into softside luggage and new campaign that includes Succession actor Alan Ruck and “Hacks” actress Megan Stalter among others is covered by WWD, Variety, and Fortune with quotes from CEO Jen Rubio on the brand’s future.
CNET reports that Speechify’s new feature allows anyone to make an AI clone of their voice to read an audiobook.
Business of Fashion reports that Glossier will be the first official beauty partner of the USA women’s basketball team for this summer’s Olympics.
Fast Company details Glossier’s partnership with nonprofit Project Backboard to spectacularly transform a rundown basketball court in New York City’s Tompkins Square Park.
Runner’s World covered the launch of Oura’s new feature which provides VO2 estimates to track cardiorespiratory fitness.
Portfolio company job of the week:
Product Marketing Manager at Canal, which connects top marketplaces and retailers with the best DTC brands to sell together through modern dropshipping.
There are ~600 other open jobs at Forerunner portfolio companies, check them out.