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Introduction: Cannibalizing Yourself

Big companies are investing billions in AI that will destroy their business models. It's rational (keep up or die) and irrational (hastening your own obsolescence) simultaneously. This is the corporate AI paradox.

The Paradox

What's Happening

• Microsoft betting on AI (threatening own products)
• Google investing in AI search (threatening Google search revenue)
• Banks investing in AI trading (threatening trader jobs)
• Every major company: Investing in own disruption

Why They're Doing It

Logic 1: If we don't, competitors will

Can't avoid disruption, so better to control it

Logic 2: Better to cannibalize yourself than let others

Would rather lose revenue to own AI than someone else's

Logic 3: Disruption inevitable anyway

Better to be disrupted from inside than outside

The Problem

Unintended Consequences

• Cannibalizing too fast (revenue drop steeper than replacement)
• Losing core competency (stop being good at old thing)
• Org structure fighting innovation (old business vs. new)
• Employee morale collapse (your job is being automated away)

Examples

Microsoft: Investing in OpenAI (competes with own Office)

IBM: Built the system that disrupted mainframes, almost died

Nokia: Had smartphone technology, didn't pursue (died anyway)

The Innovation Paradox

Why Big Companies Struggle

• Incentives misaligned (don't want to cannibalize)
• Risk-averse (can't afford major failure)
• Slow decision-making (committee approvals)
• Legacy systems (hard to build new on old)

Why Startups Thrive

• Nothing to lose (no legacy business)
• Fast decision-making (founder decides)
• Aligned incentives (disruption = growth)
• Flexible structures (build from scratch)

Corporate Responses

Separation Strategy

Create separate AI division (different culture, separate P&L)

Goal: Let new division disrupt old

Problem: Org conflict, integration hard

Acquisition Strategy

Buy startups (bring in disruptive tech)

Goal: Absorb innovation faster

Problem: Often kills startup magic in integration

Partnership Strategy

Partner with startups (access without ownership)

Goal: Benefit from disruption without org conflict

Problem: Startups might choose competitors

Likely Outcomes

Scenario A: Successful Transition (20%)

Company disrupts self successfully

Maintains dominance in new era

Rare (most fail)

Scenario B: Disrupted (60%)

Company disrupted by startups

Loses market share

Becomes legacy (like IBM)

Scenario C: Merger/Acquisition (20%)

Company bought by more aggressive competitor

Or acquires competitor to stay relevant

Conclusion: The Paradox Is Real

Big companies must invest in disruption that threatens them. It's the paradox of capitalism: self-preservation requires self-disruption. Most will fail this challenge. A few will navigate it. Watch who succeeds.

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