How To Navigate The AI Distribution Shift

The AI tech shift happened. The AI distribution shift Is just beginning. Here's how to play the game before it plays you.

After I wrote the The Next Great Distribution Shift, the most common thing people were asking me is - “What do I do about it? How are you preparing?”

Fareed Mosavat

and I tackled this in our recent episode of Unsolicited Feedback. The TL;DR: If we're right, you have months (not years) to get your platform strategy right. The gates are opening. And the innovation replication cycle has never been faster.

In this post (and episode), we take some steps to help you learn how to play the game before the game plays you.

Listen On: Apple | Spotify | YouTube

Recap: The Next Great Distribution Shift

In The Next Great Distribution Shift, I laid out four points (skip this section if you’ve already read that article).

The AI Tech Shift Happened. The AI distribution Shift Is Just Beginning.

The AI technology shift has transformed product capabilities, business models, and competitive landscapes. Yet despite this technological revolution, we have not experienced its corresponding distribution shift. This isn't unusual. Every major platform transition follows the same pattern—technology first, distribution second.

Distribution shifts consistently lag technology shifts a couple of years. We witnessed this delay during the emergence of social networks, search engines, and mobile platforms. The technology foundation establishes first, creating new possibilities and disrupting existing workflows. The distribution revolution follows, determining which companies capture and control the value created by these technological capabilities.

We Are Now Approaching The Inflection Point Where The AI Distribution Shift Will Emerge

The competitive conditions necessary for distribution shift emergence are now aligned. We have achieved market consensus that AI chat experiences represent a massive, transformative category while the ultimate winner remains unclear.

Multiple major players are actively competing for platform dominance: OpenAI with ChatGPT, Anthropic with Claude, Google with Gemini, Meta with Llama, and Apple's strategic positioning remains uncertain. This competitive dynamic creates the exact environment that historically triggers distribution platform development.

Simultaneously, traditional distribution channels are experiencing significant degradation. SEO effectiveness has declined, app store discovery has become increasingly difficult, and paid advertising channels are delivering diminishing returns. This distribution scarcity creates market pressure for alternative channels, accelerating adoption of emerging platforms.

The convergence of competitive uncertainty and distribution scarcity establishes ideal conditions for platform emergence and ecosystem development.

The Distribution Shift Will Follow The Same 3 Step Cycle

Every successful distribution platform follows an identical progression that reflects structural market dynamics rather than platform-specific strategies.

Step 1: Moat Identification Market consensus emerges around category importance while multiple players compete for dominance. The eventual winner identifies sustainable competitive advantages that differentiate from feature parity competition. In the AI landscape, this moat is shifting from model intelligence to context and memory accumulation—the platforms that can gather and leverage user context most effectively will achieve escape velocity.

Step 2: Opening The Gates The leading platform creates an open ecosystem to accelerate moat development. This involves establishing value exchange mechanisms where third-party developers receive capabilities and organic distribution in exchange for extending platform functionality and contributing to competitive advantage accumulation. We are beginning to see early signals of this phase with integration announcements and platform development hiring.

Step 3: Closing The Gates Once competitive position is secured, platforms optimize for monetization and control. Organic distribution becomes artificially constrained toward paid channels, successful third-party applications get absorbed into first-party features, and revenue sharing terms deteriorate significantly. This phase is inevitable once platforms achieve market dominance.

There Is No Opting Out

Platform participation represents a strategic prisoner's dilemma where individual rational decisions create collective competitive dynamics that force market-wide participation.

If competitors integrate with emerging platforms and gain competitive advantages through enhanced capabilities or distribution access, non-participating companies face systematic disadvantage. Market forces compel integration regardless of long-term platform control concerns.

This dynamic explains why established companies like HubSpot integrate with ChatGPT despite obvious risks of user relationship displacement. The competitive pressure of potential customer preference for integrated experiences outweighs platform dependency concerns.

The strategic choice is not whether to engage with emerging platforms, but how to optimize timing, resource allocation, and competitive positioning within an inevitable participation framework. Understanding cycle progression enables proactive strategy development rather than reactive competitive responses."

How Do You Play The Game?

As I said on Unsolicited Feedback, my intention is not to paint a picture that these platforms are “good” or “evil.” I’m passing no judgement. This cycle happens do to competitive and capitalistic incentives.

My personal mentality is that “it is what it is.” But it’s a game. They are playing you, so you need to know how to play them. Given that, the most common question I got on the original post was - So what do I do next?

What’s Your Betting Strategy?

While my personal prediction centers on ChatGPT achieving platform dominance, this outcome is not guaranteed. The current competitive environment mirrors historical distribution shifts where multiple viable candidates compete for market control before a winner emerges.

• OpenAI with ChatGPT

• Anthropic with Claude

• Google with Gemini

• Meta with Llama and Meta AI

• Apple with ??? (it will come eventually)

This competitive dynamic directly replicates previous distribution shifts. Facebook competed against MySpace, Orkut, Hi5, and Friendster before achieving dominance. Google emerged victorious despite Yahoo's early distribution supremacy. The pattern demonstrates that initial market position does not guarantee long-term platform control. That means at this stage you are taking bets and you need a betting strategy.

Diversify or YOLO?

The two most common reactions to this stage are:

1. I’ll be early, but diversify across platforms until a winner emerges.

2. I’ll just wait to dedicate any resources until it’s clear who the winner is.

These are rarely the right strategies. Waiting until the winner is clear means you are typically too late. The early arbitrage advantages are probably gone and you will be fighting an uphill battle.

Being early and diversifying might be possible for very large companies that have large experimental budgets to spread around. Startups don’t have this advantage. They have resource constraints and need to focus. You need to bet, and you need to bet right. Higher risk, higher reward. In other words, portfolio strategy does not apply to startups.

Fareed Mosavat

gave a couple of great examples in the Unsolicited Feedback Episode:

"In the mobile shift, if you bet on just Apple, you could be a winner, like Instagram. If you bet on just Android, you could not. If you did Apple and Android, you would grow faster, it turned out, because both those platforms are dominant. But building for both took a lot of resources at the time. And building on Windows Phone was a huge waste of time.”

He went on to give another example in the shift to Social:

“The same was true on the Facebook platform. Some people did ok just on MySpace in the early days, but all of those developers shifted to Facebook, right? And there were a million other networks and there was a lot of encouragement from investors, from thought leaders, et cetera, saying should build as much distribution across them. It turned out the winning move were those that just built on the Facebook platform."

The point Fareed is making, is that every ounce of energy you spend on building on the platform that is not the ultimate winner has a massive tradeoff to spending energy on the platform that does end up being the winner.

Evaluating Platforms As They Emerge

If concentrated betting represents the optimal strategy for resource-constrained organizations, the critical question becomes: how do you identify the winning platform before market consensus emerges? The answer lies in developing a systematic evaluation framework that prioritizes leading indicators over lagging metrics.

Most strategic decision-making begins with the wrong variables, leading to systematically flawed platform selection. Understanding the hierarchy of platform evaluation criteria enables proactive positioning rather than reactive competitive responses.

Scale (Necessary But Not Sufficient)

Scale represents the most intuitive starting point for platform evaluation. The logic appears sound: larger user bases provide greater distribution potential, more integration opportunities, and higher visibility for platform participants.

The Scale Requirement Reality

Platform viability does require meaningful scale asymmetry. The platform user base must significantly exceed the typical size of integrating applications or services. This threshold ensures sufficient distribution potential to justify integration investment and ongoing platform dependency.

The Scale Limitation

However, scale alone provides insufficient strategic guidance. Historical examples reveal a consistent pattern: the eventual winner is never the platform with the largest initial distribution. Facebook defeated MySpace despite having a smaller user base at the time the platform emerged. Google surpassed Yahoo despite inferior initial reach.

Scale is a necessary but insufficient condition for platform viability. Organizations that prioritize scale over other evaluation criteria systematically bet incorrectly.

Retention & Engagement (The Real Signal)

Retention and engagement quality represents the most important platform evaluation criterion because it is most predictive of competitive sustainability, user retention, and ecosystem development potential.

Retention & Engagement Creates Category Winners

Retention and engagement depth consistently determine category winners across every major platform transition. This occurs because engagement drives the fundamental loops that fuel platform growth: user acquisition, monetization optimization, and competitive differentiation.

The Engagement Compounding Effect

High-engagement platforms create compounding advantages through several mechanisms. Deep user engagement generates superior data collection, enabling better personalization and more accurate recommendations. Strong engagement patterns create higher switching costs (habits are hard to break).

User Quality (Monetization Potential)

Different platforms also have different monetization potential. The classic example involves iOS versus Android platform users, where iOS users demonstrated higher app purchase rates, in-app spending, and premium service adoption despite Android's larger global user base. Early in the platform wars, Facebook users monetized much more effectively than Myspace users.

Value Exchange (Understanding the Rules)

You also need to analyze the underlying value exchange mechanisms that govern platform participation and ecosystem development. Successful platforms establish clear value exchanges where participants receive capabilities, distribution, or other benefits in exchange for extending platform functionality, providing data, or contributing to ecosystem growth. These are the “rules of the game” that you are playing. You need to deeply understand the rules to play effectively.

Oddly, platforms that are behind will offer incentives to artificially boost your presence in order to attract new developers and contributors. But this value exchange is unsustainable. They can’t artificially boost you forever, and they can’t offer it to everyone.

Evaluate platforms based on sustainable organic distribution mechanisms rather than temporary promotional incentives. The platforms offering the most authentic, user-driven distribution mechanisms are better.

It's About How You Exit, Not Enter

Most companies obsess over platform entry timing while completely ignoring the more critical challenge: building sustainable competitive positioning before the platform inevitably closes its gates. You have to enter with the end in mind.

Platform cycle navigation requires mastering two distinct competencies: entering at optimal timing and utilizing platform resources to build independent defensibility before the closure period arrives. The first challenge demands market analysis and strategic timing. The second challenge demands execution excellence and architectural foresight.

Entry timing mistakes create missed opportunities. Exit preparation failures create existential threats. The companies that die become platform-dependent without building alternative value propositions.

The Path

Building sustainable competitive positioning during platform participation requires independent value creation that leverages platform resources while developing platform-independent competitive advantages. I believe this comes from four steps.

1. User Experience Control: The Foundation Layer

You must control meaningful portions of the user experience rather than existing purely as platform extensions. Context and memory accumulation stems from controlling part of the user experience.

User experience control enables direct relationships with end users, unmediated feedback loops for product development, and control over retention and engagement optimization. Companies that allow platforms to own complete user experiences become features rather than products, vulnerable to absorption or replacement.

2. Workflow Integration: The Embedding Strategy

Controlling part of the user experience comes from embedding into use case specific workflows that extend beyond general platform capabilities. This creates specialized value propositions that platforms cannot easily (or don’t bother to) replicate.

3. Specialized Context Accumulation: The Data Moat Development

Workflow integration creates the opportunity to collect use case-specific context and memory that improves through sustained usage.

4. Micro Data Network Effects: The Competitive Isolation Strategy

Specialized context accumulation enables a micro data network effect that operate independently from macro platform network effects. While platforms like ChatGPT develop broad network effects through general context and memory accumulation, sustainable companies build specialized network effects.

The Race: Distribution vs Innovation

When new distribution windows open they create extraordinary opportunities, extraordinary casualties, and lots of missed opportunities. Success depends on winning a single, decisive competitive race that Alex Rampell captured perfectly in his 2015 blog post Distribution vs Innovation:

"The battle between every startup and incumbent comes down to whether the startup can get distribution before the incumbent can build the innovation."

This is not a fight for slow movers.

Startups possess innovation advantages through architectural freedom and focused development. Incumbents wield distribution weapons through existing user relationships and resource scale. Platform transition periods create compressed windows for market positioning.

If you're a startup:

1. Pick your platform bet and commit fully. Half-measures lead to irrelevance.

2. Enter with an exit strategy. Build independent defensibility while leveraging platform resources.

3. Move fast. The innovation replication cycle is brutal.

If you're an incumbent:

1. Don't underestimate distribution-focused competitors during platform transitions.

2. Focus on user experience and workflow integration, not just feature parity.

3. Build your own platform relationships before competitors do.

Case Study: Cursor vs Github Copilot

The GitHub Copilot versus Cursor market dynamic exposes the harsh mathematics of this competitive race. GitHub Copilot collapsed from 100% market share to 45% in twelve months as shown in this Ramp data tweeted by Alex Immerman.

Twelve months. GitHub had almost all the Advantages:

• Microsoft ecosystem integration across VS Code

• Established developer relationships spanning millions of users

• Massive resource allocation capabilities

• Preferred relationship with OpenAI through Microsoft

• Brand recognition and enterprise sales infrastructure

None of it seems to be mattering.

Distribution velocity focused on end-user experience demolishes structural advantages when executed with precision during platform transitions.

Achieving Escape Velocity

In The Great AI Rebundling,

Ravi Mehta

said:

But right now, we're witnessing something unprecedented: the fastest, most aggressive rebundling wave in tech history.

Modern incumbents are replicating AI innovations within months, not years. Large language model APIs democratize core capabilities. Cloud infrastructure enables instant scaling. Historically we saw a 24+ month innovation lead time but that has compressed to what seems like 3-6 months.

This creates a new dynamic for startups. You must achieve escape velocity in a much shorter window. This requires to throw away some of the traditional thinking of starting small and iterating slowly and methodically.

Strategic Reality Check

A lot of companies will lose this transition. They will make the wrong platform bets. They will diversify when they should focus. They will enter platforms without exit strategies.

But there will be a lot of new companies that are created in this transition.

Winners choose their platform bet and commit completely. They understand that half-measures lead to irrelevance.

Winners will own their user experience. They control meaningful user touchpoints. They embed into specialized workflows. They accumulate specialized context and data. They build micro network effects independent of platform control.

Winners achieve escape velocity faster than incumbents can copy. They will build product-led growth engines that will bypass enterprise friction.

Winners will enter with the exit in mind. They will extract maximum value during open gate periods while building independent competitive moats. They understand that platform dependency is strategic suicide.

Your Move

The distribution shift is here. New platforms are being created. They will begin opening their gates. The innovation replication cycle has accelerated beyond historical precedent.

Your move.