Startups that merely provide a user-friendly interface around foundational LLMs are losing their defensibility. The underlying models are now powerful enough that non-technical experts can replicate these workflows directly, rendering the wrapper obsolete.

AI companies built to fill feature gaps on top of foundation models are at high risk. As core models rapidly improve, they often absorb these adjacent features, disintermediating the "wrapper" companies. Their early-adopter customers are also the quickest to switch to better tools.

Large AI labs are actively building capabilities that will directly compete with and subsume the functions of specialized SaaS companies. As Sam Altman warned, if a SaaS product doesn't improve with each new model release, the generally capable base model will eventually replicate its features, making it obsolete.

Founders often worry about AI API costs or downtime. However, the greater existential threat is that AI platforms or larger competitors will render their product obsolete by building the same features faster or by customers using a general-purpose LLM to perform the same task.

The core tension in AI is whether increasingly powerful foundational models (the path to AGI) will eventually subsume all specialized products and 'scaffolding'. Labs are betting on the model, while product companies bet the application layer will always provide critical, defensible value.

Similar to how blockchain protocols like Bitcoin and Ethereum accrued more value than the apps built on them, AI foundation models are getting 'fatter.' They are absorbing more capabilities, allowing users to perform complex tasks in a single step within the base model, reducing the need for specialized application-layer companies.

Counter to fears that foundation models will obsolete all apps, AI startups can build defensible businesses by embedding AI into unique workflows, owning the customer relationship, and creating network effects. This mirrors how top App Store apps succeeded despite Apple's platform dominance.

Startups building on top of AI models, like coding assistant Cursor, are extremely vulnerable. As foundation model companies like Anthropic improve their own native capabilities (e.g., Claude Code), they can quickly capture the market and render specialized tools obsolete.

The battleground for AI startups is constantly shrinking like the map in Fortnite. Foundation models like Anthropic's Claude are aggressively absorbing features, turning what was a standalone product into a native capability overnight. This creates extreme existential risk for application-layer companies.