In 2025, it’s no longer enough to be AI-powered—companies must be AI-native. That means architecting operations, customer interactions, and value creation around the core principles of AI systems: adaptability, feedback loops, and outcome-driven workflows. 4 AI business models are currently taking precedence: Product-Only – Winning with Workflow, Not Just Models. In the Product-Only model, success hinges not on proprietary model performance but on how deeply the product embeds into user workflows. With this model, there is a firm belief that “Distribution compounds faster than models decay” according to Apoorva Pandhi from Zetta Ventures Partners. Why? Becuase AI models degrade over time due to data drift, user behavior shifts, and competitive pressure. But a sticky product experience can endure. Companies like Perplexity, and MotherDuck thrive because their UX mirrors real user behavior. The strategic advantage is these businesses rely on low operational complexity and high product velocity. Their defensibility comes from habit formation and trust—not model superiority. Product + Embedded Engineering – Co-Creation in the Field. In this model, AI companies don’t ship generic tools. They embed engineers with customers to co-develop systems that reflect real-world workflows and edge cases. Companies like Harvey, exemplify this because they works side-by-side with Law firms to build legal AI copilots—custom-tuned to legal reasoning, regulatory nuance, and the psychological risk profile of high-stakes law. The strategic advantage is these businesses are high-touch but high-retention. While operations are more intensive, customer entanglement drives long-term defensibility and deep insights into specialized domains. Full-Stack AI Services – From Tools to Outcomes. This model shifts the conversation from software delivery to outcome ownership. Customers don’t just get tools—they get results. LILT for example, doesn’t sell translation software; it delivers full localization services, combining AI with human linguists to ensure context, tone, and intent are preserved. The strategic advantage for these companies is they benefit from continuous data loops and full control over execution. They iterate faster and improve performance over time, making their offering nearly impossible to unbundle. Roll-Up + AI – Buy Ops, Layer Intelligence. This hybrid model marries traditional operational businesses with embedded AI to unlock new efficiencies and capabilities. Rather than building from scratch, these companies acquire existing businesses—like pharmacies, warehouses, or logistics firms—and upgrade them with AI-driven labor orchestration, forecasting, and automation. Though often stealth, these AI-infused roll-ups are gaining momentum in healthcare, supply chain, and robotics. The strategic advantage here is these companies achieve rapid go-to-market, defensibility via physical assets, and compound efficiency by layering AI atop operational expertise.