The Rise and Fall of AI Wrappers

In a matter of weeks, artificial intelligence took over the world in a way unseen before. With the launch of ChatGPT by OpenAI in November 2022,  everyone suddenly had the capability to utilise the power of AI in their work, but also in their personal life. Be it answering a simple question or providing comprehensive insight into programming, there is an AI application that can help you. Due to the open nature of OpenAI, a new business model was enabled called AI wrappers.

AI wrappers, which are also referred to as API wrappers or libraries, essentially build on top of pre-existing AI tools like ChatGPT to provide their service to their client. Because a lot of the heavy lifting is already being done by the engineers of these pre-existing AI tools, it has become incredibly easy to set up a business that leverages the capabilities of AI. As one can expect, it did not take long for these businesses to start popping up.

While talking about AI, it’s important to note that AI is a very broad term. When a company uses the term AI, it’s just as vague as someone saying “Oh yeah, I invest.”. When talking about the current hype behind AI, it’s mainly about generative AI which uses large language models, of which ChatGPT is the best example. 

So what do these AI wrappers actually do? AI wrappers build a user interface for consumers and businesses around the generative AI technology provided by e.g. OpenAI, that is more user-friendly and tailored to specific use cases than ChatGPT itself. Therefore, the business of an AI wrapper is built around the tech provided by another company, hence the name wrapper. An example of an AI wrapper could be a tool that can give you advice on a legal document. Here, the AI wrapper could make it easier to provide the AI with the text of the legal document, but the actual advice would be provided by ChatGPT. 

With the newfound hype behind the technology of AI, it did not take long for investors to follow the hype with their money. Microsoft was well ahead with their initial investment into OpenAI of $1 Billion in 2019, which they have increased to $13 Billion in total as of writing. With the success of OpenAI, many investors have been looking to invest into AI themselves. While many startups have been grappling with the difficulties of securing funding in the current global economic climate, it seems that investors have been burning holes in their pockets to invest into AI startups. Despite the 48% decline in venture capital investment to $173.9 billion in the first half of 2023, over $40 billion was invested into AI startups. 

However, the cracks are starting to show. Due to the ease of create an AI wrapper, especially those that only provide little added value, the market has become highly saturated. It has become increasingly more difficult for AI wrappers to generate revenue and cover their expenses. This is mainly caused by the lack of almost any barrier to entry, so much so that many AI wrappers have to deal with free and open-source alternatives.  

One especially big example of this is the newly unveiled feature of ChatGPT in which anyone is able to create custom versions of ChatGPT tailored to their own specific needs- called GPTs. It becomes immediately clear that these custom versions of ChatGPT are essentially AI wrappers, however, anyone will be able to make them as no coding will be required to make them, and they can even be sold to everyone on the GPT store. While this feature is not live yet, one can already see what impact this will have on AI wrappers. Once customs versions of ChatGPT become available, it will be the final nail in the coffin for many AI wrapper businesses as the last sliver of a barrier to entry has evaporated.

While the AI industry as a whole will continue to flourish as the technology continues to develop, it will only be a matter of time until AI wrapper businesses will start to crumble one after the other. With that, the investments in these AI wrappers will turn out to be worthless. That is not to say that there won’t be any successful businesses that can be seen as an AI wrapper, but they will be few and far between. As a result, many investors will have fallen victim to their fear of missing out when the hype around AI started building.