"Silicon Valley is becoming a dropshipping factory for AI wrappers"

Silicon Valley is becoming a dropshipping factory for AI wrappers. Here's why many of these so-called "AI startups" are just expensive middlemen:

Every time I see yet another "AI-powered" wrapper startup launch, I'm reminded of the worst business model on the internet: dropshipping. YC's Winter 2025 batch included 128 “AI” startups out of 160 companies. But many are building identical products on foundational models with different logos:

• 10+ AI voice agents for customer support (Leaping AI, Trace)
• Multiple AI accounting/admin automation tools with similar features
• Several AI agent support platforms offering the same infrastructure features

YC routinely accepts direct competitors within the same batch. They are mass-producing AI wrapper variations of the same product with little to no differentiation (just like dropshippers).
Dropshippers: Take products from Alibaba → add markup → sell on Amazon/Shopify.
AI wrappers: Take models from OpenAI → add UI → sell to VCs and unsophisticated SMBs.

Both carry no inventory. Both conduct no R&D. Both compete solely on marketing and distribution arbitrage. Both mistake temporary arbitrage for sustainable business models. We're already seeing this play out. PhotoAI hit $157K monthly revenue through social media virality, just like dropshipped products on Instagram ads. It works until everyone copies the playbook. Then customer acquisition costs skyrocket and margins collapse. The most embarrassing example is PearAI. They literally copy-pasted Continue's open-source code and slapped their name on it. Investors need to realize that backing young technical founders worked when software was complex. Young founders know how write code but understand zero about actual customer problems. That's how you end up with 50 customer service chatbots instead of one great industry-specific solution. Meanwhile, real innovation happens with domain experts. Harvey AI succeeded because it was founded by lawyers and technical experts. They understand legal workflows, compliance requirements, and integration challenges.

Here’s what needs to change:
• Stop using traditional VC for digital middlemen: If a startup's core value is ‘ChatGPT but prettier’, they should consider seed-strapping or revenue-based financing, not venture capital.
• Prioritize domain expertise over coding ability: Industry veterans who understand workflow problems will now be better suited to build than API integrators.
• Demand proprietary data or genuine technical differentiation: Without unique assets, you are arbitraging OpenAI's pricing until they cut you out.
• Focus on thick wrappers, not thin ones: Companies building substantial features, specific workflows, and deep integrations maintain competitive moats. Simple API calls don't.

The dropshipping boom crashed when everyone realized that middlemen add no real value. The AI wrapper bubble will crash the same way, except this time, we are calling it innovation.