Picks, Shovels, Jeans, and Gold in the Age of AI
This piece was originally written and translated into Korean as a part of LG Technology Ventures' Monthly Newsletter to business units and strategic partners. It is republished here with permission. Sensitive information has been removed.
Silicon Valley has a storied history of booms and bust and people "making it rich" starting all the way back in the 1849 Gold Rush. What most outside the valley don't know though, is that the real winners of the gold rush were not the gold miners, but the people who supplied them. Levi Strauss, for example, invented a new technology: strengthening pants with metal rivets, which made for much durable clothing for the many hopeful people who came panning for gold. Today, these pants are commonly known as blue jeans, popular around the world and especially so with tech founders. “I’m not dressed casual, I’m wearing tech history!” Supplying goods to the miners in a gold rush created a profitable and sustainable business while passing down the risk of finding the actual gold to miners, a business model commonly referred to as “selling picks and shovels.”
Today we are in a new gold rush of Generative AI, and many VCs are asking themselves what the “picks and shovels” of AI are. Some argue that the foundational models are picks and shovels, although given that many are free and open source, there is a cap on how much a company can charge before their customers do it themselves. Notable VC Charmath Palihapitiya asks “if Open AI had a highly proprietary technology, they would never have sold 49% to Microsoft for $10Bn, because they would have assumed it was a trillion dollar asset”. Silicon may be a pick and shovel layer, but there is the risk of it being a race to the bottom in price/performance, and many large players like Tesla, Google and Apple are designing and manufacturing their own silicon.
LG Tech Ventures continues to look for and invest in potential AI picks and shovels, including our recent investment in InWorld. However, unlike other gold rushes, we also believe that many companies may already be sitting on top of mountains of gold just waiting to be extracted: their proprietary data. Quora, for example, has a huge proprietary data set of people answering questions, and Yelp has a huge reviews data set. Generative AI could summarize answers or provide personalized dining suggestions. With LG’s huge footprint in the homes and lives of our users, we ask our readers to think about what gold their businesses may be sitting on top of, as we look for the tools to help extract it to bring joy to our users.