The business model works fine and is in-use if many industries. The problem comes from raising and spending money on beliefs that costs will reduce to 0 because of AI, which may never happen.

Sadly most of these startups could do much better by just hiring and using human staff to provide the same services.

Yep, agreed. The problems come from misleading people, whether that's about the privacy of the service thanks to AI, or about the Opex/Capex profile of the business as a result of hidden manpower.

> a warning from history: This shtick works as long as you can transition to AI. If not, then the service will become increasingly flaky until the business collapses.

The business model "use low-paid labor to service wealthy clients" seems a little more inherently stable than that. In most cases, nobody expects a collapse. Why in speech-to-text?

Say you're not profitable, and raise money on the expectation that you can eventually lower costs and only then become profitable. If you then find out you can't lower costs (i.e. you can't automate something you could, and keep having to rely on more costly labor), then you eventually collapse.

Uber

Uber, Airbnb, others get their "partners" to provide the working capital.

This is a new take on the "value added reseller" business model. (I don't know what else to call it. Multi-level marketing?)

For instance, Autodesk's dealer channel covered the costs of marketing, sales, technical support, training, etc. While they kept the sweet nectar of profits for themselves.

> This is a new take on the "value added reseller" business model. (I don't know what else to call it. Multi-level marketing?)

"franchising" ?

If you are producing physical goods then becoming more popular just means that the stores that sell your product run out of stock faster. Then you scale up production.

With an internet based service, if you allow new people to sign up at any time and you become popular and you are not able to scale then you will not be able to service all of your users quickly enough. The people that you have pretending to be AI will be a bottleneck that makes it difficult to scale because you won’t be able to find more people suitable for that job and train them for it quickly enough. Then the business collapses.

The key distinction for many such "AI-enabled" services is that they're providing a service that is not cost-efficient even for low-paid labor, so they are selling below cost unless the expected AI-based automation gains materialize and achieve a drastic reduction in the manual labor required.

Another example here is Leverton, which is basically outsourcing all their "AI" work to sweatshop paralegals in Poland. It's apparently great to get funding though.

Could you elaborate a little more? I'm very interested in Legal Tech, however, I noticed there are few useful applications actually on the market/being used.

It depends on the use case and business model. At the end of the day, the question is can the business scale with good unit economics. Software, machine learning, etc.. are just potential levers. Reminder that no businesses have 100% gross margins, even SaaS companies cap out around 80-85% because they need to provide human support alongside their software.