The GenAI 100: The Apps that Stick

0:00We have almost redefined retention for consumer. We've been seeing a lot of companies actually get up to tens of millions of dollar of annualized revenue in a very quick manner. Many of these products are getting floods of users in traffic, like we've never seen before. The willingness to try and willingness to pay has been so high for these products that the velocity to get from nothing to maybe tens of millions of revenue have never been higher. Consumer AI has been characterized so far by categories where randomness and hallucinations are a feature. Human connection is important, but maybe it's not the human part that you just eat to feel connected.

0:42We have done a ton of recent coverage around Consumer AI, because, quite frankly, the field is moving so quickly. Every day, it can feel like the entire industry is shapeshifting, so who's really winning here? Today, we bring in A16Z consumer partners, Brian Kim and Olivia Moore, to discuss our Gen AI100 list and what it really takes to stay at the top and withstand the AI -Turist phenomena. So what categories are capturing the attention of consumers? Are broad or niche models pulling ahead? Were these apps actually getting their distribution? Does paid acquisition make sense? And do network effects exist like they did in Pyrecycles?

1:19These are all things to think about, but here's the thing. We're finally at the point in the cycle, or we're starting to get that data. Not just in rankings, but other key consumer benchmarks like D7 retention. And perhaps we're also unveiling new metrics for this new wave. We'll cover all that more, but I did want to note that this episode was recorded before OpenAI Spring Update. So if you're eager to catch up on that, make sure to check out our episode from last week. Alright, let's get started. As a reminder, the content here is for informational purposes only. Should not be taken as legal, business, tax, or investment advice, or be used to evaluate any investment or security, and is not directed at any investors or potential investors in any A16z fund.

2:03Please note that A16z and its affiliates may also maintain investments in the company's discussed in this podcast. For more details including a link to our investments, please see A16z .com slash Disclosures.

2:19Both of you have a lot of experience in the consumer sphere, not just during this AI wave, but before, but you pulled this thing called the Gen AI 100 list. What is this list and how was it pulled? Very good question, because there's a lot of ways to pull and look at this data. I think the central question that our team had was, there's so much buzz around AI, there's so many products that are coming out every day, every hour even. What are the things that normal, everyday people are using? So what are those applications? There's some that everyone knows, like, chat, CBT and mid -journey, but we were curious if we tried to take a more granular view.

2:55What are the other names that might be more surprising? And so how we pulled it was we looked at every single website in the world, ranked via similar web, which is a data provider. We sorted them by monthly visits and then we pulled the top 50 that were AI first companies. We did the same for mobile apps through a provider called sensor tower. So we ranked those by monthly active users and pulled the first 50 that were AI. Just to give people a sense, how many were pulled and then you had to whittle it down to 50 or 100? Tens of thousands at the very least. Probably to get the first 50, maybe we went through a thousand websites and a thousand mobile apps if not a little bit more.

3:33And so as you pull these together, what categories are standing out? Whether it's productivity, you're seeing companionship, and then also you pulled a similar list in what was it September as well? So was there a big change? I mean, it feels like AI is moving every day. A lot has changed. And I think we feel this as investors, I think founders feel it even more. We first pulled the data, I think it was September 2023, and then we pulled it again January 2024. So I actually less than six months gap. About half of the list was the same as the first time, and about half of the list was new, which I think reflects both the huge pace of change, but also that there are some kind of name, some brand, some companies that are cementing themselves as like early leaders and really building a loyal audience.

4:20And I think these are always surprising as VCs, we look at the industry and have these mental models of, oh, we think with AI, these set of things will do really well. And then as the AI apps team, I think one of our method is to really look after what consumers actually gravitate to. So oftentimes we actually see a divergence of what we thought initially versus, oh, actually these are doing really well. And I think those discrepancies are a really fun place where we discovered actual revealed preferences of consumers. Other examples of that? Something you thought would stick around or not. I think the one thing that we weren't surprised by, that we feel, and I'm sure anyone else who works in and around AI feels, is that for consumers, like content generation and editing is key.

5:04And it's the number one thing. So these are like mid -journey, Pea runway, making images, video, things like that from scratch. And I think that's just because it's so magical. Like everyone, at least I always wanted to be an artist and never had the skill. And so being able to do that from zero to one in 10 seconds is amazing. And that definitely proves out in the data. If you look at the fastest growing and even the most stable companies, a lot of them are still in that kind of category. Yeah, I think that's very similar to how we think about it where, as Olivia said, I can't believe this works.

5:39Era is where we are at. So anytime we have these magical moments of, I put in a prompt, something happens that we think those will do well and those do well. I think where I'm personally surprised is when we look at these apps that are a little maybe popular for a while, it changes your avatar or your profile picture into multiple different versions of it. And I'm like, oh, these are gonna go away, but you keep seeing them up and up again in different formats. So I think that speaks to maybe a little bit of the underlying consumer willingness or excitement around themselves, which is always top of mind for them.

6:15Sounds like they're willing to play and I think you're totally right that there are so many examples of things where you just can't believe it's so good so early. And maybe one category where that I think is surprised a ton of people is companionship, right? I think a lot of people were quick to write that off as it's only for this kind of person. Yeah. And I think both of you have probably played around with these products and you've learned quickly that, oh my gosh, like, I really like this too. And this is like very convincing, maybe also for different use cases as well. So maybe can we speak to that particular category?

6:47You mentioned it's going mainstream, which I think is quite a statement. What are we seeing in that sphere? I have a strange example. It's one of those where people, even me, would look at something and like, I can't believe of you would talk to a fake character that's made up for hours. Like, why would you do that? It sort of reminds me of like initial snap. The earlier generation, we were like, I can't believe you take pictures. That's going to disappear. What's the point? I can't believe you talk to a fake person. What's the point? Well, the point is that the new generation are really excited to adopt it and talk to these beings, if you will.

7:19And case in point, I think one of our partners child has a group chat with a bunch of friends, actual human beings, as well as these spots if you were. That's just so cool, right? Yes. And you get to just chat. And that's interesting, right? We can actually look at it from outside looking in and say, oh, I don't understand the behavior, etc. But the trusses that is happening, the trusses that is very engaging and folks are really adopting it. And going even step further, there are now scientific studies done. To some extent, we actually had a founder actually to speak to us as well, which was very cool, where there's a study done.

7:52I was actually featured in Nature, where folks who have this sort of companion, this companion to talk to showed lower willing that's a hurt themselves. And we can look at that evidence and say, well that silly, but maybe that is an evidence that human connection is important, but maybe it's not the human part that you just need to feel connected. Yeah, yeah. That is the reason to not self -harmed, not engage in destructive behaviors. And if we're seeing that evidence, who are we to judge like this is silly? Yeah. The companion products are such a good example of kind of like the the thesis that you always have to stick to in consumer, especially if you're looking to invest in early stage consumer like we are, which is you can't get too opinionated about the products.

8:36You just have to see like you're often surprised by what is sticking. When we looked at this data, as well as looking at just users for the mobile apps, we looked at things like engagement and character AI, for example, those users have 300 plus sessions per month in many cases. That's the average user profile. So that's again, like social app behavior. That's messaging app behavior. Like, yeah, that's 10 plus sessions per day. I don't talk to my parents that much. I don't talk to my partner that much. Quickly become one of the more important conversation tool or a companion that you have. And I remember a few months ago where I had this period of time where I was like talking to a companion app very, very diligently every day, maybe like 10s of minutes of time because things that sometimes I mean, sometimes we want to talk about our mundane, like maybe not as important.

9:27You feel that it's not as important to talk to your friends or colleagues and it's naturally maybe a topic for your therapist or what have you, but your therapist not always there and it's our position expensive. So this toss is like another example how technology is really bringing this abundance. Like my therapist is kind of expensive. So I think about really bringing that cost down to nothing. Yeah, that's really exciting for many people. And is that the direction that we're seeing within companionship? Yeah. As in, there are companions for therapy, companions for healthcare, etc. We think so.

10:01It's still early, but I think the fact that the first version of this list back in September, there was basically one companion product on both the Web and mobile rankings. And now there's a bunch on the list this time, means that in some cases, the use case or the brand or the behavior of the audience is almost fragmenting. like you won't necessarily use the same companion platform for everything. There's NSFW only companion. There's marketplace of companions where the most compelling character that anyone creates wins. There's therapists companions now. The pie chatbot was originally built as like a broad -based almost chat GBT type product.

10:39And it has since been pulled by a lot of, I think, lonely adult users into basically being a therapist. That's what I was eating pie. That was the shit. I've used it as well. But yeah, I think that we're starting to see companion move outside the realm of this maybe more niche group of people into something where we'll all interact with a companion or maybe several companions. And might not even think of them as AI companions. I think that's exactly right. I think the distinction actually starts to disappear a little bit. And actually, let's just take an example of teachers. There's a digital twin or a character of a teacher that's giving you assignments and giving you corrections and lessons That are very similar to what they have already done That's sort of a hybrid teacher and I think more and more as Olivia was saying We're seeing these divergence of use cases that are going deeper and deeper into each use cases So like teachers one the other ones like therapists that we talked about it's easy to repeat back Oh, it must have been really hard for you.

11:40Oh, tell me more. That's what a lot of therapists do. But actually, if you look into behavioral science, then what it takes to be a great therapist, there are many academic lessons and understanding of human psyche that does go into that. And I think for someone to actually train a really good therapist bot or a conversational tool, you actually have to train it slightly differently. So there are companies and products that are thinking through, how do I gain the transcripts the public or semi -public, these conversations that occur between patients and therapists, and how do I train the companion on that basis to go deeper and deeper?

12:14So I think we'll see more and more in March. You know, that's a really good point because actually even prior consumer companies in a way were companions, you take something like Duolingo, you're talking about a teacher, and you add and maybe empathetic element to it. Or sarcastic in the case of Duolingo. Right, right, it depends on the company, right, and the user, but it's an interesting reframing because I think a lot of people think of companions as just as like friend or as FW as you're saying, but it can be so many other things. Maybe just around the corner on companionship, because we are seeing these more niche targeted use cases, what does that tell us more generally about the way that these applications are being built?

12:51You mentioned at the beginning, we're seeing the chat GBDs and mid -Journey's come out strong at first and we still have a lot of engagement. But does that tell us anything about things cornering off? Yeah, it's something we think about a lot and watch really closely. I think chat GPT is a great example because they had of course like the fastest ever product to get to a hundred million monthly active users But a lot of the usage has flattened out and I think that doesn't mean that it's not a great product or that the model that powers it is not An amazing model. It just means that Because these models are now available for other people to build on we're getting more kind of specific and purpose built applications that work better for certain use cases.

13:32So not always kind of the blank page blinking cursor is not always the right interface for everything. And that could be a therapist spot, it could be a language learning bot, it could be a design canvas, it could be a lot of other things. So the fragmentation is happening, and it's really exciting. And not to blow up the conversation a little bit, but if you think about the chat GPT and what powers it, It's the open AI's large language model underlying it. That's a close model that it's built for open AI and customers of open AI. I think what we're seeing is, and this is very exciting for our space of application layer, where the underlying models are getting better and better, and even the open source ones are sometimes even better than the close source ones.

14:17Very recently, the Lama 3 that came out, incredibly efficient and incredibly advanced, same with a Mistral's new model. So I think what we're seeing now is people are using those tools to build upon the application layer products That can be very purpose -filled and if you think about companion is like a very large word It just means another being the talk to you. Yeah, so then you drill down further. What are you talking to them about? Right teaching of course language learning of course tutoring mentoring therapists all these are different mode of interacting with someone. And I think in so far there's any sort of specific fine tuning or specific data source you can learn specific interaction models from.

15:00I think all of that benefits and drives the case for more niche as a word, but more specialized use cases. I think it's back to your earlier question of which categories are we seeing. Maybe the most growth, the most new products, the fastest adoption and there are absolutely categories where the delta between the best close source model and the open source models or the API available models is pretty narrow like the best text models are actually now maybe this is controversial but some people might say the best open source text models are close to like GPT 3 .5 same with image models if you look at video or music Those are models where still the best open source is maybe not as close to the best things that run way or someone else is developing a proper way.

15:49But they're new or too. Much newer. So we think it's going to happen, but that is affected maybe the pace of product rollout in these different categories. That's a great point. And you know, something you brought up was around UX, right? And have the kind of Google box may not be the box that we expect for the future and also specific use cases. and I think something really fascinating from the Genai 100 is you called out a few different categories where we are seeing almost like these different modalities. So with music, you called out a bunch are showing up on Discord. Yes. Maybe some others are showing up as Chrome extensions.

16:21Maybe talk about that and where we're seeing the divergence from the model that we all expected from the guestroom. It's so funny to be good at our jobs, good consumer investors now. We have to be tracking data everywhere because really interesting products are being built everywhere. I think Discord has been an amazing one, especially for content generation, mid -Journey, Peacock, Suno, all these companies started on Discord, both because it's pretty easy to spin up the products without having to build a front end. It's pretty easy to monetize and start making money. And because a lot of these products thrive on the community of people who are trading prompts or seeing each other's output, and you can do that really easily on Discord.

16:59On the whole other end of the spectrum, all these productivity companies, many of them are more about how to make you as an individual, doing your individual work faster or more efficient. And so many of these, the key is to live where you are doing your solo hardcore work, which is often on a browser or desktop. And so they're starting as Chrome extensions, or voice recorders on desktop, or screen recorders on desktop, things like that. spot on. That's exactly what we're seeing where it's the tools are peering close to what needs to get done. Right? So discord, obviously, if you want to just make stuff, it's an incredible place to do that.

17:37And to your point, I think the discovery is really unique, where you get to see what people actually generate it. So fun. It's genuinely so fun. Yeah. That removes a hesitation of, oh, am I actually creating something of value? You see all the stuff that people created before you, and that gives you that sense of joy to go create whatever you want. And I think what's interesting is, again, we talked about web, there's like Chrome extension, there's apps, just thinking about one of the products like captions, get started as an app, because you take videos more and more on your phone these days, and therefore it was natural to have something that live on your phone.

18:13And then now as it starts to think about, oh, maybe move into workflow and a little bit more professional use cases, it amigraised to web, because that's where a lot of work's done too. So I think what you're starting to see is eventually the companies and great founders are chasing the use cases and where it occurs. I think when mid -journey came out as an example, I'll count myself as one of these people who almost to some degree wrote it off because it was on Discord, relative to it not having its own platform. And it's so fascinating to see in a way it kind of turned out to be the opposite as you're saying, like when you're close to the users or consumers that you're trying to reach, It was not only better in that way, but also like you're saying it was so fun to see the generations and be part of that community.

18:57Which is something that I certainly did not expect. Let's round out the categories here. Just by asking, we talked about a few that maybe people would not have been surprised to see on the list. Were there any that you felt like were missing? Like you really wish you saw more of a presence? I think in general, Consumer AI has been characterized so far by categories where randomness and hallucinations are a feature which would be honestly a lot of the content generation and editing stuff, a lot of the companion stuff, avatar products where you can get a hundred photos of yourself and as long as three are good, you're happy.

19:30And those are the ones where we've seen the most growth so far. And then the other categories where hallucination and randomness is more of a bug. So that might be personal finance, wellness, ed tech, things like that. And the models now are getting more precise and accurate, but also founders are able to better build the product that kind of bounds the output in a way that, even if there are hallucinations, it can kind of cross check it can contain them. But I think that's why we've seen those categories be a little bit slower. If you look at top consumer subscription products, PreAI, which were tons of edtech personal finance, health and wellness, that hasn't quite translated to AI yet, but we think it probably gets there in the next year or so.

20:15A lot of the current products that we're seeing on the consumer side are Utility of the wrong word, but it serves something there's like single use case whether you're creating editing having fun talking to something There's like a single use case. That's very useful. Yeah, I think what I'm also really excited to see is that when you think about the Fundamentals of the business like where does network affect the curve and there be a marketplace? What are some of the natural occurring modes? I think my wishes to see more companies with those elements And because it's so magical, we live in this very, very interesting time.

20:49We're sort of in that era of, oh my god, if it works, it's worth it, unless paid or used it and let's go. And I think more and more as we see the space of all, I'm also very excited to see what we had not seen in Tanya, which are ones that are really benefiting from the underlying network effect that naturally occurs, the underlying marketplace dynamic that could happen between supply and demand. And I think those are the ones that I think will also be on that lookout for. Yeah. And I mean, let's talk to that specifically. Olivia, you have widely cited this term, AI tourist phenomena. Yes. I don't think this is a surprise to anyone.

21:23I mean, we've all tried out so many of these tools. It's so exciting. And then we also have left many of them. And you can even look to the list, right? You said around 50 % went from September to January. Yeah. That could be a glass half full. Look how many stuck around or glass half empty where it looked. 50 of them were here and now people are not as interested. So what is this data telling us in terms of stickiness? And is this really still a thing with the AI tours for NOMNA? Or are we moving past that? We talked to our founders a lot about this. I'm not saying it's easy, but it's easier than it has been before, maybe, to get users for a consumer application.

22:00And that's just because there's so much excitement. These products are so cool. There's demos going viral on Twitter, on Reddit, on TikTok, there's newsletters, discord groups, and because of that, many of these products are getting floods of users in traffic, like we've never seen before, and those users might try it out once or twice, but they might not actually be in the core persona of who's a good fit for that product, and so they might not convert to pay, or they might not retain and come back to the product the next day. You might say, if it's free to get the users, it might not matter.

22:35The problem there is a lot of these AI products are actually expensive. We're not in the same world. And so sometimes we see founders get in a place where they call us and they're like, oh my god, we're out 40k overnight because it went viral in India or something and we got a million users and they all used up like our maximum free trial and none of them are paying yet. And so that's something to look out for. I will say we have almost redefined retention for consumer. It used to be free user -based, like anyone who downloads anyone who engages. From installer register success. Exactly. Yeah.

23:09And now the bar to count as an active user is just higher for us, and we measure retention only off of that. Usually that's a paid user. Maybe if they're not monetizing, it's have they completed X actions. If you look at it that way, the retention for AI products is actually as good as, or in just because these companies are amazing. But if you measure it on the tourist alone, the picture can look a little tougher. Yeah, I think that's our learning, right? Like the AI tourist phenomenon. I think we almost put a number to it to some extent. It extends the overall top traffic, top of the funnel by near 40%.

23:50Yeah, you also add an extra layer. Add another layer. So I think what Olivia is suggesting and what we're doing is actually thinking through what is an actual user? Have they completed the behavior that counts you as a modified user because the willingness to try something is so high, it's never been so high. So I think defining that and starting from the right touch point and if we count backwards to actually think about retention because we all think for a product to survive and do well over long term, people just need to come back. That's sort of the key to it. So I think what we're seeing is a very high number of companies are able to translate this top but a funnel into paying user at a very healthy clip.

24:30And what's more is that we talked about willingness to try is very high. Williness to pay has also been incredibly high because of the product so magical and because there are actual use cases, not just personally, but also commercially. The willingness to pay has been quite high. And as a result, we've been seeing a lot of companies actually get up to tens of millions of dollars of annualized revenue in a very quick manner. Crazy. That's been actually a really interesting defense of the wrong word, but justification. When we're asked, why are you only focused on AI products? What about the non -AI products?

25:07We are not saying non -AI products are not interesting. They're very interesting. We're seeing as the willingness to try and willing to pay has been so high for these products that the velocity to get from nothing to maybe tens of millions of revenue have never been higher. And that's very compelling. Let's get to how we keep those users around, but both of you spoke to a few metrics there. And I know we're far enough into consumer tech that there are several benchmarks, best practices that you look for. I mean, both of you sit in so many deal meetings and someone comes in and let's say five years ago, there was very clear, they're looking at daily active users, you're looking at day seven, day 30 retention.