AI Driving Cloud Disruption: Bessemer’s 2024 State of the Cloud Report

Bessemer Venture Partners’ 2024 State of the Cloud report highlights five key trends shaping the future of the Cloud AI economy, indicating that the reality of AI adoption is outpacing the hype.

Big Tech’s battle over AI foundation models: The report predicts that foundation models will become the new “oil” fueling downstream AI applications, with Big Tech companies vying for market dominance through significant investments in model providers like OpenAI, Anthropic, and others.

• Bessemer believes the majority of value captured in the model layer will be shared by incumbent cloud vendors and a few household name layer companies.
• The battle for AI models is expected to be a critical “land grab” that will determine which Big Tech companies reign supreme in the cloud and compute markets in the coming years.

AI turning everyone into developers: The rise of AI-powered coding assistants and copilots is making programming more accessible, potentially leading to a dramatic reduction in the average age of technology startup founders by 2030.

• Corporate software developers are predicted to become more like software reviewers, with development costs falling and experienced developers commanding higher salaries.
• The growth and innovation of code copilots, the “graduation motion” of copilots with agentic search and generation functionality, and code-language reasoning will drive this evolution.

Multimodal models and AI agents transforming software interactions: Static text-based chatbots are giving way to multimodal models, with Bessemer placing a specific bet on voice AI apps to experience “breakout growth” in the next 12 months.

• Intelligent and autonomous AI agents will handle tasks and manage workloads, with stronger reasoning capabilities enabling them to handle more complex workflows.
• Novel approaches to improve agents’ chain-of-thought reasoning, self-reflection, tool use, planning, and multi-agent collaboration are on the horizon.

Vertical AI surpassing legacy SaaS with new apps and business models: Bessemer strongly believes that vertical AI presents a bigger enterprise value opportunity than legacy vertical SaaS, with AI companies pricing their products on par with legacy SaaS but at a much faster rate.

• Vertical AI technology’s value proposition is comparable to expensive labor, delivering massive extensions of labor productivity for highly repetitive tasks.
• The size of these AI opportunities could potentially be 10 times that of their peer SaaS counterparts in many verticals.

AI resurrecting the consumer cloud: The consumer cloud space, which hasn’t seen a major exit in eight years, is poised for a resurgence driven by the multimodal capabilities of large language models (LLMs).

• LLM-native apps like ChatGPT, Claude, and Gemini are attracting large numbers of dedicated users and threatening to displace modern incumbents.
• Bessemer predicts multiple consumer cloud IPOs will occur within the next five years, with consumer-focused AI companies raising large sums at high valuations.

Analyzing the implications: Bessemer’s front-row view of the AI industry reveals that, unlike past waves where hype eventually outpaced reality, this time, reality is running faster than the hype. Business executives should recognize that AI startups are already making moves to engage enterprises, but patience is needed as these solutions reach their full potential. Organizations are advised to design for the future in modular ways, allowing for easy insertion of superior AI offerings as they emerge, while maintaining a watchful eye on the AI space to identify and trial suitable solutions early on.