Beyond the AI bubble, only software companies creating genuine innovation will survive, and simply wrapping existing models is no longer enough.
Imagine an AI service that summarizes hundreds of news articles for you every morning. At first, it feels magical and convenient, so you pay a monthly subscription fee. But what happens if a major IT company starts providing an even more sophisticated summary feature for free? And what if countless similar services spring up, making it difficult to find the unique charm that the service you were using once had?
The pace of AI technological advancement is dazzling. However, behind this glamorous technology, many software startups are being placed on a cold trial for survival.
Why is this important?
In the AI era, software is no longer just the exclusive property of developers. Much like databases or cloud services in the past, Large Language Models (LLMs)—AI models that answer user questions like humans—have now become core technology stacks for all IT companies [Source: LLM Powered Startups: How Language Models Are Changing the …]. As of July 2025, nearly half of all new SaaS (Software as a Service) startups include LLMs in their tech stack from the inception stage [Source: LLM Powered Startups: How Language Models Are Changing the …].
While many companies are jumping into AI, Darren Mowry, a venture partner at Google, warns that two types of startups are facing a survival crisis [Source: Google VP Warns AI Startup Types May Not Survive – Key …].
Simply put: The limitations of ‘Wrappers’ and ‘Aggregators’
The models currently in crisis are ‘LLM Wrappers’ and ‘AI Aggregators.’
To put it in perspective: an ‘LLM Wrapper’ is like a restaurant that sells high-end cuisine created by a famous chef (the Large Language Model) simply by plating it in a pretty dish. The dish might be pretty, but the taste itself can be copied by anyone who knows the chef’s recipe. In other words, they lack the ‘special taste’ (unique differentiation) that only the startup possesses.
An ‘AI Aggregator’ is similar to a delivery app that simply collects menus from various restaurants in one place. Because they only play the role of mediating information, margins shrink and their footing narrows when platform operators develop their own menus or other powerful competitors appear [Source: Google VP warns that two types of AI startups may not survive].
Because these companies lack technological differentiation, it is difficult for them to survive competition with giant corporations as the market matures [Source: Google VP Warns AI Startup Types May Not Survive – Key …].
Current situation: Investment craze vs. cold reality
| During the year 2025 alone, over $9.8 billion was invested in LLM-based startups [Source: LLM Powered Startups: How Language Models Are Changing the …]. The market is so hot that over 1,400 startups worldwide are participating in LLM development [Source: [Large Language Model Market Report 2025 | StartUs Insights](https://www.startus-insights.com/innovators-guide/large-language-model-market-report/)]. |
| However, investors and cloud providers are now starting to distinguish between companies that are merely riding a trend and those that are creating unique innovation [Source: Google VP Warns AI Startup Types May Not Survive – Key …]. Startups that solve real problems in their respective fields—such as data management, vector databases (technology that organizes data for AI to search well), security, and risk management—are still growing healthily [Source: [Start-up activity in the LLM ecosystem | Natural Language …](https://www.cambridge.org/core/journals/natural-language-engineering/article/startup-activity-in-the-llm-ecosystem/724BE927817BDDC82EF939AB765F68D2)]. |
What will happen next?
The future AI market will move beyond the stage of simply utilizing technology and focus on what results are created through that technology [Source: LLM Wrappers Are Dead: How AI Agents Are Reshaping SaaS and …].
‘What flashy features are offered’ will become less important than ‘what user problems are perfectly solved.’ Users will ultimately choose software from companies that provide trust and sustainable support alongside convenience [Source: Whether AI is a bubble or revolution, how does software survive?]. Technology is merely a tool; only startups that do not stop questioning the essence of how to deliver real value to users through that tool will survive in the end.
MindTickleBytes AI Reporter’s View
The commoditization of AI technology has been both an opportunity and a poison for startups. Connecting an LLM is no longer a ‘product’ but the ‘default.’ Now, the ability to solve problems deeply beyond technology will be the sole standard that determines a company’s survival.
References
- Google VP warns that two types of AI startups may not survive
- Google VP Warns AI Startup Types May Not Survive – Key Takeaways
- Whether AI is a bubble or revolution, how does software survive?
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[Large Language Model Market Report 2025 StartUs Insights](https://www.startus-insights.com/innovators-guide/large-language-model-market-report/) - LLM Powered Startups: How Language Models Are Changing the …
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[Start-up activity in the LLM ecosystem Natural Language …](https://www.cambridge.org/core/journals/natural-language-engineering/article/startup-activity-in-the-llm-ecosystem/724BE927817BDDC82EF939AB765F68D2) - LLM Wrappers Are Dead: How AI Agents Are Reshaping SaaS and …
- Data management firms, Security firms
- LLM wrappers, AI aggregators
- Cloud services, Infrastructure providers
- About 10%
- About 50%
- About 90%
- Simple model wrapping without differentiation
- Strengthening data management and security
- Unique technological innovation