Volume 193: GarageAI.

GarageAI.

tl;dr: Deepseek & AIs firstNext-Cycle narrative

I’m sending Off Kilter a bit early this week because we’ve just had a seismic leveling of the playing field in AI. Normal scheduling shall return next edition.

By now, you’ll almost certainly have heard of Deepseek, the Chinese corporation that just released a GenAI model that is equivalent to the best of the West but 40X more efficient.

The big story isn’t the drop in Big Tech market value, nor is it the seismic shift in the geopolitics of AI. Nope. The big story is that now we know cheap models are possible, it’ll be replicated and improved upon, creative destruction will happen, and the narrative around generative AI will rapidly shift from Big Tech dominance to the competitive commoditization of a core technology of the future.

Don’t believe the inevitable spin that’s coming. This is only an existential crisis for Big Tech. Everyone else will pivot because the commoditization of core technologies benefits everyone, but the very richest: while the process will be messy, it will drop costs,drive innovation in specialist LLMs, increase competition, and unleash the first Next-Cycle startup narrative of the AI era. I’m calling this phenomenon ' GarageAI,’ because it won’t be constrained, directed, nor controlled by the demands of the behemoths. To explain GarageAI, let’s first walk back through history.

If we zoom out toward the long arc of its history, creative destruction has been the OS that drove Silicon Valley. New technologies replaced the old, spawning a new breed of innovators who’d turn a garage startup into a multi-billion dollar corporation, growing while those created by the previous generation of innovators slowed, declined, or died. It spawned stirring tales of the American dream, derring-do, and founder-innovators as pop culture heroes.

Then, a very small number of the current generation became so powerful that they gained monopolistic dominance across a vast swathe of the global economy. Acutely aware that creative destruction is the OS of Silicon Valley because they benefited from it, the leaders of these firms then spent years ensuring that no garage startup would ever happen to them. This is important because when OpenAI began to have breakthroughs with its eye-wateringly expensive blunt-force models, the BigTech response wasn’t to view this as something to be improved upon but to treatit as a feature to be doubled and tripled down on, for it meant they’d be theone’s picking the winners because the next wave of technological disruptionwould be closed to all but the largest and richest corporations on earth. In other words, them.

The sheer scale of their Last-Cycle ambition, hubris, and propaganda served its purpose. It chilled Western entrepreneurialism at the model level, pushing AI startups toward either infrastructure, primarily chips, or new application products that wrap around the core models instead. This works for Big Tech because rather than worrying about a new generation of entrepreneur replacing them, their riches would give them control over infrastructure and make anything built atop their models feudally dependent. And from there, we know the playbook:

Then, the Chinese figuratively ‘blew the doors off’ by developing an entirely new approach that didn’t require the cost and power that Big Tech thought was necessary, ironically, because of the creative constraint of not being able to access the most powerful chips because of US export controls extensively lobbied for by…BigTech. Oh my.

Make no mistake, this changes pretty much everything.

While the media narrative will likely be about US/China relations and will almost certainly make the mistake of confusing capital for innovation, the real story is that Silicon Valley is about to have an immune response to big tech monopolization as its core DNA of creative destruction kicks in with a vengeance and GarageAI flourishes. It’s not just about the models; it’s about competition making these models predictably cheap enough to radically change the economics, and thus the entrepreneurial velocity, of the coming productization and commercialization of GenAI into everyday life.

This means GenAI entrepreneurs will now be able to embrace its Next-Cycle narrative free from dependence on the Last-Cycle Big Tech firms they may one day displace; the question now is what it's going to take for such startups to break through in a sea of new competition that’s about to emerge. It’ll take more than just a great product, as this is increasingly the cost of entry in tech. So, if any of you are out there, here are a few things to think about:

While its biggest competitor, Booking.com, acts like a drug addict, dependent on Google AdWords to the tune of billions a year, over 90% of AirBnB traffic is organic. It controls its own destiny, Booking does not. Here’s how Big Tech got to businesses like Booking. It persuaded an entire generation of business leader that its advertising products were so efficient they didn’t really need much of a brand. Don’t get sucked in. If you squint at it in the shortest of short terms, at a skirmish level, they may have a point, but zoom out to the longer haul across which competitive battles are truly won and lost, and brand strength rips these efficiency claims into tiny little pieces.

This is a generational-level disruption, freeing AI from the shackles of the Last-Cycle and pushing it into the arms of the Next, as Silicon Valley's garage-driven DNA belatedly kicks in with a creatively destructive immune response to monopoly.

I can’t wait. Let’s go.