The Headfake of Vertical AI: Supply Chain Edition
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A few weeks ago, I, along with over 7,000 operators, innovators, and investors, made our annual pilgrimage to Manifest, the largest supply chain & logistics technology conference. AI, AI, AI was everywhere you turned.
Massive incumbents and established technology providers breathlessly pushed out AI features and capabilities. AI-native startups presented a proliferation of agentic automation of every flavor under the sun - targeting SMB and enterprise shippers, carriers, brokers, forwarders, customs, and other service providers across all modality and touting game-changing capabilities across all functional areas.
Potential buyers ranged from AI evangelists to skeptics. Some were wowed by the immediate value-add of new solutions like generative AI voice communication and workflow automation and some were dismissive of disappointing demos that showed limited value add. Others were already demonstrating fatigue at the seemingly indistinguishable sleek marketing pitches fueled by a resurgence in VC interest in the category. Vertically-specific and broad horizontal solutions alike were resonating! The same 3PL executive gushed about a horizontal marketing automation tool that seamlessly integrated with his existing martech stack AND an incredibly niche AI invoicing and payment agent for his sub-segment of logistics.
The hyperspeed of AI solutions are certainly breaking previous paradigms of traditional software. Products will be built, launched, copied AND made obsolete at a dizzying pace. Classic frameworks of horizontal vs. vertical will need to be rethought. For some solutions, onboarding (and offboarding) friction will approach zero.
As we enter this step-change in technology innovation, I wanted to share some initial thoughts:
The most obvious winners are physical product (and services) companies. As Sib Mahapatra, founder of Branch and my go-to for chic office furniture, astutely noted that, “Relative returns will shift away from software to AI beneficiaries like physical product companies that can reduce personnel and software overhead. At the end of the day, you can’t sit on an AI.” Physical goods companies are much more comfortable operating (and winning) in markets without “product” defensibility and new AI tools across sales & marketing and operations can significantly boost the P&Ls of forethinking teams. Similarly, service providers like 3PLs will likely also benefit from the AI wave, particularly given the current abundance of rote workflows. Early adopters can leverage their improved P&L and customer experience to pass along price savings to the end customers, giving them a significant advantage over the rest of the market. To echo Sib, an AI can’t fulfill that Branch order (although maybe Helix will get there eventually…)
“Your margin is my opportunity.” As a staunch #longAMZ team, we must carefully heed the Bezo-ian battle cry. The ultimate application and manifestation of this would be TRULY digital-only freight brokers and forwarders (#throwback), but I believe we are still a ways from that being a reality. However, there’s a clear opportunity for the middlemen of the supply chain to adopt AI workflow tools to increase their profitability, efficiency, and quality of service. Traditionally, sub-scale brokers and forwarders have found it difficult to scale large enough to rival incumbents - is there a window of opportunity for bold teams to leverage technology to rapidly gain market share and breakthrough?
The size of the prize is dangerously fluid. Supply chain is an incredibly large market at $2T of annual spend and full of potential applications for AI so it’s unsurprising that many credible teams with domain expertise or / AND (!) technical chops are throwing their hats in the ring. Coupled with eager capital, the competition will be fierce as teams will have to compete on product quality, velocity, sales & marketing all while building towards long-term defensibility. In the absence of a true moat and intense competition, prices will unquestionably collapse as products and services become more efficient. There is a real danger that for some categories, “the last AI agent left standing” won’t be winning much. On the flip side, we do believe there are incredibly exciting businesses to be built here - where AI compounds platform advantages like proprietary data or network effects. There may even be new types of platform advantages as founders work through what the new playbook for value creation may be!
We are still incredibly early in understanding how AI is going to transform our world but make no mistake, the game is definitively on in supply chain and logistics! We have already entered the AI hype cycle within the sector, but for an industry that still remains as disconnected and antiquated as supply chain & logistics, we should all welcome AI’s potential to make the industry more transparent, efficient and interconnected.
As always, for anyone building in the space or interested in chatting more, please reach out to chelsea@equal.vc!