Why AI services is one of the most important market opportunities of the last century—and how you can take part

Happy Saturday, folks.

Today, we unpack the burgeoning AI-services paradigm. A once in a generation opportunity for builders to disrupt traditional service businesses, as well as entire workflows within product-first businesses.

Trend

AI-Enabled Services

The rise of AI-enabled service businesses offers an unprecedented opportunity to disrupt traditional service businesses, as well as entire workflows within product-first businesses.

Imagine being able to achieve software margins and scalability with the market size of services. That’s the prize.

This trend is already evident in industries ranging from legal and healthcare to customer support, where AI is driving significant efficiency gains.

The AI-enabled services is a compelling market due to its size, reach, and impact on profitability:

• The Big 4 accounting firms alone brought in $200 billion (with a b!) in revenue last year.

• Klarna's AI chatbot is estimated to drive a $40 million USD profit improvement in 2024 by doing the equivalent work of 700 full-time agents.

• DLA Piper reduced the effort required for due diligence on limited partner agreements by 80% using AI.

• The US alone has roughly 23 million professional services jobs worth $1.97 trillion in aggregate wages (based on average wages).

By automating entire workflows, a full-stack AI-service business can capture a whole ‘functions’ budget (E.g., Accounting), not just a software budget (Accounting Software).

As a result, much larger contract values are on offer than SaaS. An analogy is the price difference in being able to outsource your entire accounting function versus spending <$100/month on Quickbooks or Xero.

The corollary to this is that you can target smaller markets but still build a huge business.

Diving deeper, what are examples of AI-enabled services? Emergence Capital shared a visualisation to understand the spectrum of opportunities:

There are two key reasons service firms are hired:

1. To provide expertise and bandwidth the client doesn’t have

2. To offer external expertise in decision-making

AI is more likely to disrupt the first bucket of tasks that can be automated and have objective outcomes. Decisions require trust. Trust that we’re unlikely to put entirely in computers (yet).

And the race is on to build Companies here:

So, the question remains: What to build in a space that’s bound to be one of the most competitive land grabs in history?

Given the nascency of AI development, opportunities are emergent, and it’s hard to predict where the most value accrues, but a few we like are:

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