Why cloud helped startups but AI helps incumbents

This article summarizes an episode of 20VC’s video series featuring Bessemer Venture Partners partner Byron Deeter.

Byron Deeter, partner at Bessemer Venture Partners / Photo credit: Bessemer Venture Partners

Unlike previous tech waves that favored startups, the current AI era gives established incumbents an edge. Byron Deeter, a partner at Bessemer Venture Partners, argues that incumbents’ proprietary datasets offer a superior resource for building AI solutions, flipping the traditional script on disruption.

This incumbent advantage is fueling a shift toward more ambitious goals. Deeter outlines a new playbook for reinventing software categories, expanding into the human labor budget, and achieving a “supernova” growth velocity that makes old benchmarks obsolete.

Incumbents possess an AI advantage

Deeter argues the current AI wave favors incumbents due to their data, distribution, and platform advantages. This contrasts with the first cloud wave, which created opportunities for disruption through business model innovation rather than existing assets.

AI extends the cloud rather than disrupting it.
Deeter states, “in cloud you had a business model dislocation going from license to subscription and you had a delivery model dislocation going from on-prem to single instance multi-tenant… In this AI wave it’s really the next horizon of cloud and so you’re layering intelligence on top of cloud delivery and business models”.

Incumbents hold platform, data, and distribution superiority.
He notes, “[Incumbents] have platform advantage, data advantage, massive distribution advantages. And so the fast-moving incumbents are absolutely going to make a run at being the leaders in the next cycle, which hurts the challengers”.

Established firms are disrupting themselves.
Deeter observes, “I look at a company like a Canva or I look at a company like Intercom that’s at a scale where in some ways they’re already becoming an incumbent in those markets and yet they’re disrupting themselves at awesome rates and have AI products that are already deep into the hundreds of millions in revenue”.

Execution remains the differentiator

While incumbents have advantages, Deeter believes high-execution challengers can still win. Data moats alone are insufficient if the resulting product fails to deliver a better outcome for the end user, creating an opening for nimble startups.

High-execution challengers will defeat incumbents.
Deeter asserts, “I still believe that the high execution challengers will beat them over time and they also have some inherent advantages and innovators dilemma and some of these things still exist”.

AI reinvents vertical SaaS by unlocking the labor budget

Competition in vertical SaaS is evolving beyond capturing the traditional technology budget. Deeter argues that vertical SaaS isn’t dead; instead, AI is reinventing it. The key change is that AI enables platforms to deliver solutions that augment or automate human tasks, allowing them to access the much larger human labor budget.

The central issue is reallocating costs from labor to technology.

Instead of just selling software tools, AI platforms are increasingly selling automated outcomes. Deeter frames the significance of this transition, posing the core question for the next wave, “will AI fundamentally transition the technology that we sell and create into the labor budget, not just the technology budget?”

This shift from the tech budget to the labor budget is already happening.

The new mandate is augmentation over replacement

Supernova growth eclipses traditional benchmarks

Product-led growth is the only path to supernova scale