Three years into the generative AI wave, one pattern has become hard to ignore: most AI startups still make real money from businesses, not everyday consumers.
Yes, millions of people use tools like ChatGPT. But when it comes to specialised consumer AI apps, from creative tools to social experiences, very few have shown lasting traction. Investors are starting to ask why.
Many early consumer AI products impressed users but failed to hold their attention. Investors say this happens when startups build features that feel exciting in the moment but become irrelevant once bigger platforms catch up.
As general-purpose AI models improve, they often absorb these niche use cases directly. What once looked like a standalone startup suddenly becomes a built-in feature. The result? A shrinking window for defensibility.
This pattern feels familiar. In the early smartphone era, third-party apps filled obvious gaps until operating systems evolved and made them unnecessary.
AI Platforms Haven’t Settled Yet
According to VCs, consumer artificial intelligence is still waiting for its “platform moment.” Mobile apps didn’t truly explode until smartphones reached a level of consistency and reliability that allowed founders to build confidently on top.
AI, they argue, is still stabilising. Competing models are racing toward parity, and until that dust settles, it’s hard for consumer-focused startups to build something durable rather than disposable.
That doesn’t mean the opportunity is gone, just early.
The Smartphone May Be the Bottleneck
Another challenge lies in where AI lives today: the smartphone.
Phones were designed for taps and swipes, not for always-on intelligence. Investors believe that many AI-first consumer experiences feel constrained because the device itself can’t fully support them.
This has sparked a race to invent new hardware, from smart glasses to screenless assistants, that could make AI feel more ambient and natural. While many of these experiments have struggled, VCs believe the right form factor could unlock entirely new consumer behaviours.
That said, not all successful consumer artificial intelligence products will depend on futuristic devices. Some of the strongest ideas involve deeply personalised services delivered through existing tools.
Think AI-powered financial guidance tailored to an individual’s life, or an always-available tutor that adapts to how someone learns. These ideas don’t need new hardware; they need trust, accuracy, and long-term value.
Where VCs Remain Cautious
One area raising eyebrows is AI-driven social platforms filled with automated accounts interacting with users. Investors question whether people genuinely want to engage in social spaces dominated by machines.
At its core, social networking works because users believe real humans are on the other side. Replace that too heavily with AI, and the experience risks feeling hollow.
VCs don’t believe consumer artificial intelligence is failing; they think it’s unfinished. The biggest winners likely haven’t launched yet, and when they do, they’ll feel less like clever demos and more like everyday essentials.
For founders, the message is clear: lasting consumer AI startups won’t win by novelty alone. They’ll win by timing, defensibility, and solving problems people actually want to live with every day.
