Artificial Intelligence – The Business Model: Technical Savior or Carnival Snake Oil?

Artificial Intelligence – What is the AI business model?

Is Artificial Intelligence truly the next transformative technology, or the next rug pulling grift?

To gain some insight let’s take a look at some recent statistics on the topic.

• In a recent article by Jason Lemkin, he indicates that data shows that Artificial Intelligence startups burn through cash twice as fast as previous startups.
• Private Equity (PE) firms are shifting their traditional model of buying an underperforming company, holding, improving, then selling.
  • PE firms are getting in early (and often) with Artificial Intelligence Startups.
  • Some sources indicate PE Firms have poured almost $250 Billiion into Artificial Intelligence over the last twenty four (24) to thirty six (36) months.

The Artificial Intelligence Business Model Backstory

• Private Equity (PE) and Venture Capital (VC) firm’s offer up a pile of cash to build up an initial Artificial Intelligence user and subscription base.
• Once a target threshold and set point is reached, look to create sticky and difficult to exit dependencies for the AI user subscriber base.
• The initial model is “Free Access” for a limited time, then “hook the user.”
  • Changing the free model to subscriptions is necessary for recovery of the initial investment and recovery of the PE/VC cash burn that built up the initial user base.

The Artificial Intelligence Business Model in Practice – Subscriptions, Tokens and Enterprise Models

• Our analysis indicates the Artificial Intelligence business model work flows demonstrates as follows:
  • Provide initially free or low cost initial subscriptions.
  • Slowly introduce subsequent future subscription price increases for the same functionality.
  • Promote performance increases with a higher tiered subscription price.
  • This increase in subscription fees is necessary to recover the development costs of the initially free available Artificial Intelligence models.
  • A free access with embedded advertisements model will manifest soon.
  • Difficult to decipher caps on AI token useage.
    • Reddit, Github and other user threads are now sharing cases of degradation and performance issues in coding speed and accuracy as token limits are approached.
    • Most executive leaders do not yet understand that the AI enterprise subscriptions they are signing up for do not include a true “unlimited access” to Artificial Intelligence tokens as part of current subscription model tiers.
      • This will manifest in subscription prices exceeding the initial investment that was forecasted as part of the enterprise AI subscription investment.
      • There are also very uncomfortable conversations happening now in executive leadership meetings asking “how are we already exceeding our Artificial Intelligence investment thresholds?”

Artificial Intelligence – Data Privacy and Public Indexing of Content

• Lastly, and most importantly, it’s the data and its privacy.
  • Artificial Intelligence tools are being fed critical and sensitive internal data without concern of internal organization teams.
    • This in and of itself is cause for concern.
    • This data, once important and guarded by the organization is being used to train the AI model to which the subscription fees are being paid.
  • In late July of 2025 a TechCrunch Article reported that it was discovered that ChatGPT had a feature that would make public Artificial Intelligence conversations indexible and searchable on internet search engines.
    • “It’s a strange glimpse into the human mind: If you filter search results on Google, Bing, and other search engines to only include URLs from the domain “https://chatgpt.com/share,” you can find strangers’ conversations with ChatGPT.
    • Open AI recently disabled this feature based on the public response.

Given the above elements, our guidance is to proceed with extreme caution in the evaluation of Artificial Intelligence tools for your organization.

Is the Artificial Intelligence rug pull imminent?

Time will tell, but it sure seems the rug pull may be coming soon from an AI agent near you.

In our next article we’ll discuss and explore the concerns about the “cognitive debt” at both the individual and organizational level which is now manifesting with heavy use and dependency to Artificial Intelligence tools.

What are some next steps to consider?

If you’d like to learn more about Artificial Intelligence, check out The Innovation Garage AI primer session offerings. In these sessions we present high level approaches that will support your organization to sensibly explore and create an effective Artificial Intelligence strategy for your organization.

Take a first step by reaching out to us here, or drop an email to i[email protected].

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