Did OpenAI just kill a bunch of startups by making a small change to ChatGPT? Investors and startup founders will soon learn about this.
Sam Altman, company added a new feature for ChatGPT subscribers. Now, users can upload PDF files, and the chatbot can analyze them and answer questions about them. If you’ve ever had to go through lots of PDF pages to find useful information, you know it can be boring and hard. This update is helpful for ChatGPT Plus users.
The update also creates a wider problem.
A few startups relied on the fact that ChatGPT couldn’t work with PDFs. But now that ChatGPT can handle PDFs, what unique things can these other startups provide that ChatGPT can’t?
The quick answer might be “not much.”
AI-Focused ‘Wrapper Startups’ Face a Reckoning
Sahar Mor, a product lead at Stripe, mentioned on LinkedIn that OpenAI just executed a move that will wipe out dozens of AI startups. He was talking about what he calls “wrapper startups.” These are startups that essentially “wrap” around an API like ChatGPT. They use the technology inside the chatbot to provide a service that the API itself doesn’t offer directly.
It’s not always the case that founders creating AI wrapper businesses are trying to take advantage of a weakness in ChatGPT. In March, OpenAI allowed developers to integrate ChatGPT into their apps and products. So, startups providing PDF features aren’t the only ones using this approach. Many startups are doing this for various purposes.
One of the most notable wrapper startups so far is Jasper AI, which entered 2023 with a valuation of $1.5 billion. They received investments from major venture capital firms like Coatue and Bessemer Venture Partners.
How did Jasper AI achieve such a high valuation? They developed an “AI copilot” designed specifically for enterprise marketing teams by building around OpenAI’s GPT model.
Startups Integrating with ChatGPT and the Risk of Competition
This concept appears to be facing challenges, as the company has reduced its internal valuation, according to The Information. Additionally, they announced staff layoffs in July. Startups that provided features for users to work with PDFs by integrating with tools like ChatGPT might be concerned about a similar fate.
Here’s an example: In May, data scientist Alex Reibman introduced ChatOCR, a ChatGPT plugin designed to “read text from PDFs, including scans and handwriting.”
Following the recent ChatGPT update, he conducted a poll on X, asking users what they thought would happen to his plugin “now that ChatGPT has added PDF processing.” Out of 210 respondents, 72.4% anticipated that the plugin would “be used less frequently.”
The key takeaway is that without a moat to make them significantly different from competitors, startups risk being plundered. Investors need to start considering if they’ve placed big bets on the wrong horse.
The recent update to ChatGPT, enabling PDF interaction, poses challenges for startups that relied on its limitations. Sam Altman’s addition benefits ChatGPT Plus users but poses questions for competing startups. “Wrapper startups,” like Jasper AI, face uncertainty as they wrap around APIs. These developments highlight the risks for startups and investors without a unique advantage.