High compute costs, value-conscious users to challenge Indian consumer AI startups: Lightspeed's Harsha Kumar

Summary

Venture investors are betting that the next set of large companies will emerge across health, education and entertainment. But computing costs will be an inhibitor in a business that is already expensive to scale.

India's consumer artificial intelligence-focused companies in segments such as education, content and healthcare will have to navigate increased compute costs, value consciousness from customers and changing retention metrics if they want to scale up and monetize, according to a top executive at global venture capital firm Lightspeed India.

“We are sort of back in a way to 12 years ago, you know, when it was hard to monetize India,” said Harsha Kumar, a partner at the firm. “We're going to go through that journey again. Founders will have to be smart about what they build and how they build and how they monetize.”

Venture investors have been looking more closely at the consumer AI segment and began allocating capital to it last year. Most are betting that the next set of large companies will emerge across health, education and entertainment. But as Indian companies build AI apps for consumers, computing costs will be an inhibitor in a business that is already expensive to scale.

Compute costs are expenses incurred on the processing power, hardware and the energy required every time a consumer interacts with AI. Demand for AI hardware such as graphics processing units exceeds supply and is driving cloud rental and hardware lease rates higher.

“Compute pricing keeps founders from building more mass-market solutions. Even now, founders have to build more vertical companies so they can actually have margins,” said Kumar. “It'll be a challenge for a few years at least.”

Indian startup founders are willing to wait a few months for cheaper open weight AI models to emerge from China instead of paying the high fees to US companies for the use of models such as OpenAI’s ChatGPT and Anthropic’s Claude.

Rwit Ghosh