The emergence of AI represents a significant technological development with profound implications for economic competition and market dynamics.
We present a simple tale to show how a single technological innovation transforms an entire economic ecosystem, revealing how seemingly incremental changes can fundamentally disrupt established market structures:
Once upon a time, in a small distant town, there was a shoe-maker.
Business was booming. After all, he was the only shoe-maker in town! Days flew happily.
But everything changed when the coat-maker acquired a new machine. This machine was not only capable to make coats, but shoes as well!
The coat-maker began creating shoes using leather remnants from coat production, making them significantly cheaper. Soon, everyone was purchasing these new, affordable shoes.
The shoe-maker found himself in a difficult predicament. Desperate for solutions, he decided to consult his friend, the lace maker.
However, his friend was facing his own challenges—another shoe-maker had discovered a method to craft shoes without laces!
Determined to understand this new development, the shoe-maker sought out the innovative craftsman. « How do you make these shoes without laces? » he asked.
« Well, » replied the other shoe-maker, « I recently received this extraordinary machine. I asked it how to create cheaper shoes, and it ingeniously found a way to eliminate laces entirely. »
Intrigued, the shoe-maker inquired further, « Is there anything else this machine can do? »
« Oh, yes, » the other shoe-maker responded with a smile, « it also makes coats. »
The strength of the transformer model, at the very core of AI, is its ability to generalize from one type of application to another, given a sufficient amount of data.
In the future, this will enable businesses and industries to restructure traditional competitive landscapes through two primary mechanisms: vertical and horizontal competition.
- Vertical competition occurs when organizations directly challenge or replace existing supply chain intermediaries, by developing capabilities that previously required specialized external services.
- Horizontal competition occurs when organizations can rapidly enter markets entirely unrelated to their original domain.
This reshaping of the competitive landscape, this sort of « cross-pollination » of economics will be enabled by AI’s ability to simultaneously operate across multiple markets, languages, and regulatory environments.
Small teams or even individual entrepreneurs can now compete with large institutional actors by using AI to generate insights across diverse knowledge domains, for an ever-diminishing cost.
AI represents a fundamental shift in how businesses conceptualize innovation, competition, and value creation. Traditional barriers to entry are dissolving, replaced by a new paradigm where algorithmic capability and adaptive intelligence become primary competitive advantages.
Like the shoemaker of the tale, contemporary organizations must develop adaptive strategies that embrace technological complexity rather than resist it.
Companies that can quickly integrate AI, develop complementary human skills, and rethink their operational models will likely thrive in this emerging landscape.
McLein’s mission is to help companies stay ahead of the curve.