Chi-Hua Chien on why AI applications will beat infrastructure

Chi-Hua Chien, co-founder of Goodwater Capital, argues that the commoditization of the model layer—the infrastructure level of AI—is already underway. According to Chien, the biggest winners of the AI era will not be the companies selling AI itself. Instead, he asserts that infrastructure companies get commoditized over time, leaving application companies to capture most of the value. Chien, who as a 27-year-old associate at Accel identified the six-person company then known as The Facebook, now focuses on consumer and prosumer technology investments at Goodwater, including MIDI Health, Fever, and Monzo.

To support his thesis, Chien points to historical patterns from previous technology cycles, where application value consistently dwarfed infrastructure market caps:

• In the web era, infrastructure new entrants produced $400 billion of new market cap, while application companies created $3.1 trillion—representing 88% of the new value.
• In the mobile era, infrastructure produced about $700 billion, while application companies produced $3.7 trillion, driven by businesses like Netflix, Spotify, Meta, Uber, and Airbnb.

This shift is already visible in the current AI cycle. For example, Google recently cut the price of its subscription AI product from $7.99 to $4.99 a month. Chien also notes that the gap between the most advanced AI model and what you can run on your phone—previously a two years lag—will probably shrink to three months within the next year. Regarding the broader market frothiness and public disputes among venture capitalists, Chien suggests that the public friction reflects a meme-ification of the business world and probably signals some peakiness in the market.

This focus on applications extends to how consumer trust is built. Chien asserts that Americans will never trust a single super app—an application combining social, entertainment, and financial services—with both their social lives and their finances. He points to a fundamental trust gap in the Western world between social platforms and financial transactions. “There is a seriousness to financial transactions that is very different from the triviality of social media,” says Chien, co-founder of Goodwater Capital. Instead of super apps, Chien sees the next frontier in personalization. Goodwater has backed entertainment companies like Triumph, Ritten, and Flow GPT, which are scaling to $100 million, $400 million, and $600 million of ARR (Annual Recurring Revenue) by using AI to customize user experiences. The firm is also investing in physical-world connection, backing Paris-based interface company Bump (founded by the creators of Zenly, which was acquired by Snap) and Fever, a live entertainment company based in London and Madrid that operates across Europe.

Why it matters

Chien’s perspective suggests that the AI market is following a predictable historical pattern where infrastructure quickly commoditizes. As a result, the primary value capture will shift to application companies that leverage AI to solve supply-constrained problems.