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FC Insights
As AI adoption grows, large horizontal AI players are expanding across both horizontal and vertical use cases by embedding AI into widely used systems. As a result, adoption is driven by distribution and integration within products users already rely on, even when these capabilities are relatively surface-level.
For emerging AI players, competing head-on with horizontal giants is less viable than focusing on specific users, workflows, or industries where precision, context, or performance matters more. Verticalization and niche focus allow these players to remain relevant by solving problems the large platforms address only broadly.
For emerging AI players, competing head-on with horizontal giants is less viable than focusing on specific users, workflows, or industries where precision, context, or performance matters more. Verticalization and niche focus allow these players to remain relevant by solving problems the large platforms address only broadly.
The Consolidation of the Horizontal AI Market
Companies such as Microsoft, Google, and OpenAI are consolidating the market by replicating capabilities that were once offered by standalone horizontal AI companies, embedding them directly into systems and suites, such as:
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When AI features are embedded into products and systems people already use, users are unlikely to seek out standalone or alternative tools when integrated solutions adequately meet their needs.
The Slow Creep of Horizontal AI Into Vertical Features
Horizontal AI players are also layering industry-specific functionality onto their products. By introducing targeted features that address common tasks within specific industries, they extend into vertical use cases such as:
These vertical features make tools easier to use in specific industries, but most offerings remain surface-level, leaving room for specialists to win.
As a result, even as horizontal AI players continue to expand across features and vertical use cases, this does not mean other players become obsolete. There remains opportunity as the landscape continues to evolve.
As a result, even as horizontal AI players continue to expand across features and vertical use cases, this does not mean other players become obsolete. There remains opportunity as the landscape continues to evolve.
Potential Opportunities for Emerging AI Players
1) Owning a Niche Where Marginal Gains Matter
While large horizontal AI players excel at general-purpose tasks, there are areas where even small improvements in accuracy, relevance, or context matter. In these cases, users are willing to switch between tools to gain marginal performance improvements.
Perplexity
Perplexity deliberately targets researchers and analysts who require high-confidence, source-backed answers. By optimizing for citation transparency and factual reliability, Perplexity serves users for whom even small accuracy improvements materially affect decision-making.
Cursor
Cursor is built for developers working in large and complex codebases. By being coding-native, it maintains awareness of the broader codebase and its interdependencies, allowing it to adjust changes accordingly , which matters when changes span multiple files.
This creates an opportunity for smaller AI players. By owning niches where precision, speed, or contextual depth matters disproportionately, specialized platforms can remain competitive even as horizontal AI continues to scale.
2) Escaping the Giants through Verticalization
Despite the ever-growing share of tech giants in the market, smaller-sized AI companies actually still has a chance to stay if they have a unique moat. One way is through verticalization by pivoting to serve a more specific niche and audience.
Copy.ai
The phenomenon of integrated "writing assistants" inside tech giants makes standalone general AI writers lose their moat.
To escape the "no-moat" trap of general AI writing, Copy.ai rebranded as an enterprise GTM platform. By niching into sales and marketing workflows, they successfully traded small-ticket subscriptions for high-ticket enterprise contracts. Salesforce Salesforce is a well-known agentic AI for sales and marketing. Going beyond just serving the sales and marketing function, they go deeper to tailor their solutions for different verticals, such as automotive, education, financial services, etc.
This proves an active effort to retain customers in different industries.
To escape the "no-moat" trap of general AI writing, Copy.ai rebranded as an enterprise GTM platform. By niching into sales and marketing workflows, they successfully traded small-ticket subscriptions for high-ticket enterprise contracts. Salesforce Salesforce is a well-known agentic AI for sales and marketing. Going beyond just serving the sales and marketing function, they go deeper to tailor their solutions for different verticals, such as automotive, education, financial services, etc.
This proves an active effort to retain customers in different industries.
The AI is the engine, but the vertical is the steering wheel. Chances for small to medium-sized players lie in its proposition and defensibility.