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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The Rise of Large Language Models
It’s a truism in tech that every new computing platform opens the door to an entirely new generation of software companies. The client-server era that took off in the 1990s brought Oracle and SAP, while cloud computing gave birth to Salesforce and a host of “software as a service” companies.
The Next Platform
Large language models are shaping up to be the next platform to launch a thousand entrepreneurial dreams. With generative AI available on tap from companies such as OpenAI and Anthropic, there has been a blizzard of “smart apps” designed to make work easier. The speed at which some of these are winning users, and their surging valuations, is setting new records in the software world.
Coding Assistant and Beyond
Most notable has been the rise of coding assistants such as Cursor. Its owner is reported to be close to completing an investment round valuing it at $10bn — only three months after it raised money at $2.5bn. Coding aids and other AI-powered tools for technically savvy users have led the way, but many other start-ups have been picking away at just about every aspect of white-collar work. These range from tools used to create or edit all forms of content and digital media to ones that can handle deep research.
Fear of Missing Out
Fuelling this is a fear on the part of many workers that if they don’t learn how to use the tools they will miss out on skills that will soon be an expected part of the job, says Tomasz Tunguz, a software investor at Theory Ventures.
Quick Results
Some apps are registering surprisingly quick results. Mercor, which uses an AI-powered agent to carry out interviews to screen candidates for jobs, said in January its annualised recurring revenue hit $50mn less than two years after it was founded. For comparison, it took Salesforce four years to hit $50mn in annual revenue.
Revenue Growth
Revenue at others appears to be exploding even more quickly. Loveable.dev, a Swedish company that tries to help non-technical users build things like websites, said its ARR hit $17mn last month, only three months after launch. A similar company, Bolt.new, said it went from zero to $20mn in two months.
Challenges Ahead
As companies like these achieve rapid lift-off, they face the same issues as generations of new software applications before them — as well as a few new ones. One challenge is to turn an AI-powered tool designed for one task into a core part of a customer’s software. That means automating more aspects of the processes they have targeted until their agents are capable of digesting an entire workflow.
Conclusion
The rise of large language models has opened up new opportunities for entrepreneurs, but it also presents challenges. As these companies scale, they will need to navigate the complexities of building a sustainable business model, while also keeping costs under control and competing with established players in the market.
FAQs
Q: What is the potential of large language models in the software industry?
A: Large language models have the potential to revolutionize the software industry, enabling the development of new applications and tools that can make work easier and more efficient.
Q: What are some of the companies that are leading the way in this space?
A: Companies such as OpenAI, Anthropic, and Cursor are leading the way in the development of large language models and AI-powered tools.
Q: What are the challenges facing these companies?
A: The companies face challenges such as building a sustainable business model, keeping costs under control, and competing with established players in the market.
