C3.ai: The Struggle with Selling AI Software
The buzz surrounding Artificial Intelligence (AI) is hard to ignore, with many companies viewing it as the ultimate solution to their problems. However, success is not guaranteed even for companies that specialize in AI, like C3.ai. The California-based AI software company’s stock price has risen dramatically this year by 229%. Yet, surprisingly, its fiscal revenue growth in the last year was less than 6%, and it is struggling to increase sales.
C3’s problem may be that it sells a type of AI that is less impressive than the chatbots and large language models that companies like OpenAI offer. Instead, C3 specializes in software that analyzes data. Although it launched a generative AI service, this is not a core product.
When C3 was listed, the company attempted to spread the concept of “corporate AI” to potential investors and customers, peppering San Francisco with billboards. However, that was not the company’s initial purpose. Founder Thomas Siebel wanted to offer software services to companies dealing with carbon emissions, and the “C” in C3 stands for carbon. The company has gone through several rebrands since then, including a brief period as C3.IOT. In 2019, it became C3.ai.
Pivots are often lauded in Silicon Valley. However, C3 spends millions to attract new customers, which does not align with the increasing global interest in AI. In the 12 months to April 30, C3 spent $183 million on sales and marketing, which is around 70% of its revenue. Growth is uneven, with a small customer base generating a large percentage of sales. When the company went public in 2020, three customers contributed 44% of revenue. In the most recent quarter, one customer, Baker Hughes, accounted for 45%. The joint venture will end in April 2025.
However, C3 now faces a new challenge due to the revenue model shift towards pay as you go. This may result in unpredictable revenue. Besides, there is no timeline for achieving sustainable profitability based on generally accepted accounting principles. C3 highlights the gap between enthusiasm for AI and sustainable AI-driven income.
Why Is C3 Struggling to Sell Their AI?
C3’s struggles in selling their AI software may stem from multiple factors:
1. Product Market Fit: Even though C3’s software is AI-based, it might not solve significant problems for businesses. There may be little demand for the software.
2. Market Hype: AI is a fast-growing industry that is highly sought after by investors. Hence, many investors often invest in AI without considering the specific benefits of different technologies and applications, leading to artificial hype.
3. Evolving Landscape: Businesses are selective about the AI software they use. With AI technology evolving quickly, the software or application that worked a few years ago may no longer meet current requirements.
4. Focus: C3 initially planned to offer carbon emission-reduction-related software services. When it pivoted to AI software, it lost focus on their new goal.
Improving C3’s Revenue Model
1. Explore new revenue sources: C3.ai’s limited focus and revenue sources leave it vulnerable to changes in business trends. Exploring collaborations or partnerships in other areas could help reduce this risk.
2. Reduce Sales and Marketing costs: Although sales and marketing are essential for acquiring new customers, spending 70% of revenue on these tasks appears to be counterproductive. C3.ai can explore the use of online and social media marketing channels as an alternative to traditional marketing.
3. Improving Customer Acquisition Costs: C3.ai can focus on improving the acquisition cost required to convert a customer. The implementation of natural language processing and chatbots can help improve customer service and drive sales.
4. Shift to Pay-As-You-Go: Several software companies, including those with AI, have implemented a pay-as-you-go revenue model. This can improve revenue predictability and streamline customer acquisition.
In conclusion, C3’s struggles highlight the gap between the hype surrounding AI and sustainable AI-driven revenue. Its initial focus on reducing carbon emission-driven software services lost focus when it pivoted to AI software. The company should explore new revenue sources, reduce sales and marketing costs, improve customer acquisition costs, and shift to the pay-as-you-go model to sustain growth.
Summary
C3.ai, a California-based AI software company, has experienced a massive surge in stock prices this year by 229%. However, its fiscal revenue growth last year was less than 6%, and it is struggling to increase sales. The company’s main problem may be that it specializes in AI software that analyzes data, which has fewer impressive features when compared to chatbots and large language models. Hence, demand for its products may be limited. The shift to pay-as-you-go revenue models could improve revenue predictability and streamline customer acquisition. To sustain growth, C3.ai should reduce sales and marketing expenses, improve customer acquisition costs, and explore new revenue streams.
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If artificial intelligence is the hottest sector of the year, why is the self-described artificial intelligence software company C3.ai struggling to increase sales? The California company’s stock price is up 229% this year, despite the challenge from short sellers. Bagging the “AI” ticker symbol didn’t hurt. However, revenue growth in the last fiscal year was less than 6%.
C3’s problem may be that it’s trading the wrong type of AI. Unlike OpenAI’s large language models and generative AI chatbots, C3 sells software that analyzes data. It has launched a generative AI service, but this is not a core product. Revenue growth this year is expected to be around 14% at most.
When it was listed, C3 attempted to spread the idea of corporate AI to potential investors and customers, by peppering San Francisco with billboards. However, that’s not what it was created for. Founder Thomas Siebel wanted to offer software services to companies dealing with carbon emissions: the “C” in C3 stands for carbon. The company has since gone through a number of rebrands, including a brief stint as C3.IOT. In 2019 it was called C3.ai.
Pivots are lauded in Silicon Valley. But the company spends a lot to attract new customers, something that doesn’t coincide with the increased global interest in AI. In the 12 months to April 30, it spent $183 million on sales and marketing, or 70% of revenue. Growth is uneven. A small number of customers make up a large percentage of sales. Three made up 44% of revenue when the company went public in 2020. In the most recent quarter, just one company, Baker Hughes, made up 45%. The joint venture will close in April 2025.
Now that we’re moving to a model that charges as you go, your revenue may become less predictable. There is no date on the agenda for sustainable profitability based on generally accepted accounting principles. C3 illustrates the gap between enthusiasm for AI and sustainable, AI-driven income.
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https://www.ft.com/content/88106387-e2fc-4a1e-83a9-a20b98db9bf2
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