Startups learn the hard way that relying on OpenAI’s tech can burn them

ChatGPT takes out a bunch of startups in one fell swoop

A recent update to OpenAI’s ChatGPT that allows users to upload PDFs and ask questions about them has sent ripples through the startup ecosystem. This development poses a significant, if painfully predictable, threat for many companies, particularly for “wrapper startups” that have built their businesses around a feature gap in ChatGPT.

The change serves as an essential reminder to founders and investors: Nothing can serve as a substitute for a sustainable company with a solid, stand-alone product.

“Wrapper products” provide a service by “wrapping” around an API like ChatGPT, leveraging the underlying technology to offer a service that isn’t directly available from the API. The recent update to ChatGPT exposes the vulnerability of such startups: In a flash, their unique selling proposition can be made redundant by a feature update from the underlying technology provider.

That’s neither new nor all that interesting. Startups build their fortunes on extending the features and functionalities of bigger corporations all the time, and some of them can raise money at valuations of billions of dollars. The hope is that the corporate overlords spot what the startup is doing and buy them. The plan often fails in a number of explosive ways.

So, what does OpenAI’s move mean for startups and their founders?