Why most AI startups will fail: Redditor explains the ‘Swiss Knife’ effect, calls out overhyped productivity claims

A viral Reddit post has sparked a heated discussion on the AI startup boom, arguing that most AI companies are doomed to fail due to competition from big tech models rather than human productivity.

"It's absolutely mind-blowing to see how most AI companies always (like I mean, always) try to compare their models against human productivity," the user wrote. "We've heard all these bombastic ads about how they can increase human productivity by xxx%."

The user claims that AI startups are missing the real threat—they are competing not against humans but against other AI models, particularly ChatGPT, Claude, Gemini, and DeepSeek, which are already dominating the space.

The post highlights how big tech AI models are becoming "all-in-one Swiss knives", rendering niche AI startups redundant.

"Why on earth would I pay some random AI startup's model when the models from big tech can already do the same thing? It makes no sense," the user argues. The Redditor points out Microsoft Copilot as an example, arguing that it's just an aggregator of AI models—yet users still prefer standalone AI tools like ChatGPT or Claude.

Another example is Perplexity AI, a search-focused AI tool that recently ran an ad comparing itself to traditional Google search. However, the user dismisses this approach: "Perplexity made an ad with the Squid Game guy to compare Perplexity vs. traditional Google search, completely ignoring the fact that ChatGPT deep research IS their number one competitor (not traditional Google search)."

The post draws a comparison between the current AI race and the early 2000s search engine wars.

"This is like early 2000s all over again, where everybody kept saying search engines will become more popular as more users access the web. Meanwhile, we all know how it went. Only Google eventually won that search engine war, with everybody else becoming losers."

If history repeats itself, only a handful of AI giants will survive, while the majority of AI startups will fail or be acquired.

With AI models rapidly evolving and big tech dominating, many niche AI startups might struggle to differentiate themselves or offer long-term value. As one Reddit user summed it up in the comments: “If your AI startup isn’t solving a highly specialized problem, it’s already dead.”

However, one user commented: "Self-hosted open weight models are getting better though. The future of AI is about specialisation, not jack of all trades like all the big companies are doing. I guess they're trying to find their niche."