The following is an snippet from my conversation with John Walter on 1/15/2025
The current conversational AI vendors are doing quite well and are maintaining healthy profit margins. I've heard one mention an 80% profit margin number before. I'm just curious about your perspective on 10 to 15 years from now. When it comes to the ability of conversational AI vendors to maintain profit margins in that ballpark,
I don’t think they will. I think 80% gross margins are achievable because the technology is becoming so cheap so fast.
We were in conversational AI for a while, and back when we were doing it, it was much more expensive and complex. Now it's gotten to the point where there are so many open-source tools, and most of the intelligence is offloaded to the LLMs. You still have to deal with the plumbing, like voice connectivity, but even that is becoming super easy. What’s happening is a big proliferation of startups saying, “Hey, we’re another voice automation company, another conversational AI vendor, or another bot.” The market is saturated, which leads to compression of margins.
In 18 to 24 months, you're going to see CCaaS vendors incorporating this technology into their platforms. I know for a fact that at least three of them are working on it. They haven’t released anything yet due to the risks of hallucinations and wanting to ensure they get it right. Pricing is also a factor since they’re used to charging per seat. Now they might need to adopt pricing models like per minute or per transaction. And, as always, price approaches marginal cost in the long run. Bezos’s famous saying, “Your margin is my opportunity,” applies here. Once something is no longer complex to do, it’s time to move on. Voice automation will likely remain big and noisy for another year, but the momentum is waning because it’s no longer difficult or complex.
When I talk to contact center leaders, the gap between interest in voice AI and its adoption is striking. Everyone’s curious and eager to deploy something eventually, but they’re cautious because of hallucination risks. It’s interesting that CCaaS platforms are developing their own tools. This could align with a point where the technology advances enough to be confidently used with low hallucination risks, just as CCaaS vendors make it available natively.
This ties into the earlier discussion about the delay between interest in a product and its adoption. We’re in the early stages of the technology diffusion curve, with larger brands waiting to see what happens. If you’re a startup in that waiting period, you’ll likely be cash-starved. Early wins might come from digitally native companies, but not from large banks or laggards, which take longer to adopt. There’s a market for niche, vertical applications, like a healthcare benefits bot connected to marketplace APIs with specialization that narrows hallucination risks.
Good general startup advice: if you’re managing complexity on behalf of a customer, they’ll pay you. For example, integrating with systems like Epic in healthcare is a pain. Solving that is less about the voice AI and more about connecting into the infrastructure to facilitate transactions. That’s what you’re doing with ProxyLink—facilitating the transaction effectively.
When I see generic voice bots, I’m not excited. It feels like a CCaaS play or a niche-focused play.
Share this post