Gen Z is the first generation to grow up alongside the internet — they see all the ebb and flow of new and emerging technologies. AI is no different, it quickly positioned itself as an everyday tool shaping how Gen Zs work, learn, and interact. From ChatGPT-powered study hacks to AI-generated content flooding social media, Gen Z’s relationship with AI is evolving fast.
DeepSeek CEO Liang Wenfeng prioritizes hiring GenZs, believing that "experience is not that important" and that less experienced individuals are more likely to explore and find innovative solutions.
Deepseek AI chatbot | PHOTO CREDIT: The New York Times
DeepSeek, Alibaba’s Qwen, and a wave of open-source AI models are shaking up the AI landscape. AI, once the exclusive domain of well-funded tech giants, is rapidly becoming democratized. Gen Zs are not only users but also builders of this shift, making their relationship with AI even more intricate.
How does Gen Z’s relationship with AI impact the future of consumer AI products, the startups building them, and the investors backing them? Let’s dive into the new AI landscape and what it means for the generation at the forefront of digital innovation.
Gen Z as consumers
Gen Z’s relationship with AI isn’t just passive consumption; they are active participants. From leveraging AI for content creation and side hustles to building their own AI projects, this generation is redefining what it means to be a tech-savvy consumer.
However, Gen Zs are also its harshest critics. Gen Zs who grew up with tech and a generation that values authenticity in their digital interactions are more discerning when it comes to how businesses use AI. One of the well-researched dilemmas is around how advertisers are using AI. The underlying skepticism comes from the way that these ads might create an “inauthentic” or “unethical” image for the brand.
Optimism and caution
- AI and Gen Z career anxiety: Despite the growing optimism, the uncertainty of how AI will likely affect their career opportunities and quality of life remains high. Developing and investing in emerging technologies should align with the needs and preferences of future consumers and the workforce. For startups and investors, this presents both an adoption challenge and an opportunity. AI-driven solutions with the goal of empowering rather than replacing workers will be critical in shaping a positive future of work.
According to Deloitte, “among the ~25% of workers who use generative AI most of the time, there is both a stronger sense of optimism and a heightened awareness of its risks”. This suggests that while AI integration can build confidence in its potential, especially among younger workers, it must be implemented responsibly to sustain the trust of these early adopters. Mindful AI solutions will strike a balance between automation and human creativity, ultimately fostering a resilient workforce.
- AI and Gen Z’s consumption habits: Novelty drives early adoption, but long-term success depends on sustained value. The excitement around generative AI is undeniable, but history has shown that hype alone doesn’t guarantee sustainable business advantage in the long term.
One example is the initial hype around VR as the next computing paradigm to replace desktops and phones, but as it turns out, widespread adoption has been slower than anticipated. Companies that have found sustained success, like Meta, have had to continuously iterate their products and focus on creating engaging content ecosystems.
Furthermore, just as we saw the rapid rise and fall of anti-social media platforms like BeReal during the COVID-19 pandemic, AI applications face the challenge of keeping users engaged beyond the initial novelty. As consumer behavior is fickle, products must prove they can evolve with user needs—and build moats beyond the fundamentals, such as community engagement and continuous iteration.
Gen Z as founders and builders
Gen Z is taking charge of building their future, where AI will undoubtedly be an integral part of their life. Here are some examples of how our portfolio companies are building AI for Gen Zs, by and alongside Gen Zs.
- Alinea: This investment platform has introduced an AI voice assistant to guide users through onboarding and provide personalized investment plans, enhancing user experience and accessibility.
- Merazine: Co-founded by Gen Z entrepreneurs, Merazine is revolutionizing online shopping by gamifying the experience. The app features daily styling challenges, personalized avatars, and a community-driven approach to fashion discovery.
Merazine's build-and-grew try-on shopping feature
- 1337: Although not founded by Gen Z, 1337 actively engages Gen Z consumers by hiring them to test AI influencers, ensuring their products resonate with younger audiences.
1337 builds AI-driven virtual influencers
Value shift — building and investing in the AI arms race
Models like DeepSeek and Alibaba’s Qwen are challenging the status quo. The notion that business leaders may have been overpaying for AI, coupled with the increasing accessibility of AI, is reshaping the competitive landscape. As a result, the moat for AI-driven startups is shifting, impacting a wide range of industries across the value chain.
IoT Analytics identified “winners and losers” in the generative AI value chain following the entrance of new competitors entering the AI race. While the impact is not so black-and-white, one takeaway is that open-source models are making the utilization of AI more accessible and cost-effective. This challenges incumbents in the industries benefiting from the AI boom—all the while creating new opportunities for AI application developers and end users. In the past, proprietary AI models were the sole differentiator, but now, the competitive environment pushes companies across the ecosystem to rethink their competitive strategies and push value creation toward:
- Distribution: Having a great AI model isn’t enough; companies must integrate it into experiences that drive engagement and retention.
- Proprietary data sets: The real advantage will come from companies that own unique, high-quality data to fine-tune models for hyper-specific use cases that solve pervasive, painful problems.
- Stickiness: The most successful consumer AI apps will be those that feel indispensable—be it through habit-forming experiences, community-driven interactions, or deep customization.
For startups and investors, the takeaways are clear.
- AI-driven consumer apps must be more than just wrappers around an AI model. They need to create meaningful, habit-forming interactions that align with Gen Z’s expectations—hyper-personalized, decentralized, and seamlessly integrated into their digital lives. The winners won’t just be those with the best models but those who can build the most engaging and indispensable experiences.
- Look beyond current applications. The most promising opportunities may lie in creating entirely new products and services enabled by generative AI.
- Prioritize responsible AI, keeping top of mind things like data security and best practices. Implementing ethical AI practices is a crucial and rare differentiator for a startup, especially as competition tightens.
There is no guarantee that the portfolio companies mentioned in this blog will be profitable or will remain in the fund. Portfolio companies are shown for illustrative purposes only.
Certain information contained herein has been obtained from published sources and/or prepared by third parties.
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