Ai Washing and How to Avoid It

We define Ai Washing and our team offers actionable strategies for founders, users, and investors to avoid falling into its traps.

Since ChatGPT became the fastest-growing software application in history in late 2022, it seems as if almost every business and software company is touting its "Ai-powered" tools to appeal to users and investors. It's not that this is an ineffective strategy; statistics show that in 2023, Ai-related startups commanded up to 60 percent more cash from investors than non-Ai startups did (see chart below, courtesy Statista.com)

Why Ai Washing Occurs: All Numbers Represent Median 2023 Startup Valuation In Millions.

Like a mother who senses her young children are having a little too much fun and are up to no good, whenever an unregulated goldmine appears for founders and investors, you can rest assured that the Securities and Exchange Commission (SEC) is on its way to gain some control of the situation. This week, for the first time ever, the SEC accused two firms of "Ai washing," spotlighting a practice that's now increasingly scrutinized in the tech and business world. Ai washing, much like its predecessor "greenwashing," refers to the misleading act of falsely suggesting that a company's products or services are powered by advanced artificial intelligence technologies, which significantly impacts consumer trust and regulatory compliance. For startup CEOs, especially those at the helm of burgeoning tech companies, this news from the SEC serves as a crucial wake-up call.

Understanding Ai Washing

The promise of Ai’s improvements in efficiency, innovation, and competitive advantage can tempt businesses to overstate their capabilities, hoping to attract investment, boost market share, or simply stay relevant in a rapidly evolving tech landscape. Ai washing is just that: it occurs when a company misleads consumers and investors by exaggerating the extent to which Ai is integrated into its products or services. In some cases, elementary or run-of-the-mill software algorithms are often rebranded as "Ai-powered" by startups without substantial improvements in functionality or performance.

The Risks of Ai Washing

If the prospect of the SEC breathing down one’s neck isn’t enough to dissuade an intrepid CEO from Ai washing, the consequences of Ai washing extend far beyond regulatory repercussions. Ai washing can erode customer trust, damage brand reputation, and lead to competitive disadvantages as the market becomes more educated and discerning about Ai products. Additionally, misleading investors or consumers about Ai capabilities can attract legal challenges and financial penalties, as seen in the recent SEC rulings.

Simple Strategies to Avoid Ai Washing

Our team has created a list of simple strategies for both founders and product users & investors to avoid Ai washing.

For Founders:

Strategy #1. Don't talk about Ai unless you mean it.
  1. Keep Ai’s Name Out Of Your Mouth (Unless You Mean It): Ensure that all claims about your product's Ai capabilities are accurate and verifiable. Avoid using Ai as a buzzword and provide clear explanations of how Ai technologies are implemented within your product and the tangible benefits they offer.

  2. An Educated Audience Is A Good Audience: In a few cases, Ai is the panacea that it is often portrayed to be by the media. In many more cases, it is not; it is a complement to current capabilities. Use your platforms to educate consumers and investors about what your Ai can and cannot do. Clear communication can help manage expectations and build a foundation of trust and credibility.

  3. Invest in Genuine Ai Development: Allocate resources to develop or integrate real, effective Ai technologies into your products or services. Collaboration with Ai research institutions or hiring Ai specialists can enhance your capabilities and ensure that your Ai claims are grounded in reality.

  4. Adopt Ethical Ai Practices: Now that it’s clear that the government has taken a public interest in protecting Ai users, investors, and other Ai stakeholders, it’s a perfect time to ensure that your Ai technologies adhere to ethical guidelines and principles, such as privacy, transparency, and fairness. Ethical considerations should be at the forefront of your Ai development and deployment strategies.

  5. Regularly Review and Update Ai Claims: As your Ai capabilities evolve, regularly review and update your public statements and marketing materials to reflect the current state of your technology accurately.

  6. Seek Third-Party Validation: Consider obtaining certifications or endorsements from reputable third-party organizations that assess and verify Ai technologies. This can provide an additional layer of credibility and assurance to your claims.

For startups, navigating the path of Ai integration with integrity is paramount. In fact, the key for CEOs is quite simple: be innovative and be honest. As the regulatory landscape continues to evolve, those who prioritize transparency and genuine Ai integration will not only avoid legal pitfalls but also build lasting trust with their customers and stakeholders.

For Product Users and Investors*

It seems as if every hardware and software product is "Ai-Enabled" or "contains Ai" these days. Here's how to avoid being washed.

  1. Demand Transparency and Specifics: Look for clear, specific information about how AI is used in products or services. Companies with genuine AI integration should be able to explain how their AI works, the problems it solves, and the data it uses. Avoid companies that use AI-related buzzwords without clear explanations or evidence of AI capabilities.

  2. Seek Evidence of AI Expertise: Investigate whether the company has AI experts on its team or consults with external AI specialists. Genuine AI companies often have data scientists, AI researchers, or engineers with relevant qualifications and experience.

  3. Look for Third-Party Evaluations: Independent reviews, certifications, or assessments from reputable third parties can provide an unbiased perspective on a company's AI claims. These could come from industry associations, technology analysts, or academic institutions.

  4. Evaluate the Company's Track Record: A company's history in delivering on its promises can be a good indicator of its reliability. Look at past products, services, and client testimonials to gauge whether the company has a history of overstating or accurately representing its capabilities.

  5. Understand the Data Strategy: Genuine AI applications require substantial, high-quality datasets for training and operation. Inquiring about a company's data sourcing, management, and use policies can offer insights into the robustness of their AI claims.

  6. Assess the Level of Customization and Scalability: Real AI solutions often offer a degree of customization and scalability that purely algorithmic solutions do not. Investigate whether the AI solution can adapt to different scenarios or scale according to needs, which can be indicative of genuine AI capabilities.

  7. Beware of Unrealistic Promises: AI has its limitations and is not a panacea for all business challenges. Companies that offer realistic expectations about what their AI can achieve are often more credible than those making broad, unrealistic claims.

In short, take the time to look for transparency and be aware of companies and founders that are simply riding the Ai wave instead of making the waves themselves.

Need Consulting on Ai or Ai training? Talk to us first.

Want to implement AI solutions in your business but dont know how? Want to train your workforce on generative AI? We provide customized AI training and implementation solutions for you and your workforce. We have been pioneers in helping businesses effectively implement and educate for the Ai age. We offer services ranging from Ai strategy development and implementation to training and reskilling in Gen Ai for employees. Give us a call or talk to us and we can help.

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*Disclaimer: We are not investment advisors or attorneys. Please go to your attorney for legal advice and your investment advisor for investment advice.

Featured image prompt: "Give me a fun, cartoonish image demonstrating the new trend of "Ai washing". Feel free to use a laundromat or other real-life examples as a metaphor. Include negative space for us to add text." Produced using Canva Ai, image also edited using Canva's "Magic Expand" function.

Ai Club image prompt: "A bar of soap, reminiscent of the iconic style seen in the Fight Club film logo, but instead of the original text, it features the letters AI engraved into the soap. Widescreen aspect ratio" Produced in Dall-E, additional editing completed using Canva.

Will Smith Image Courtesy of imgur.