Why AI-Native Challengers Are Forcing Incumbents to Rethink Positioning

By Peggy Tierney Galvin 

One of the biggest pressures facing established B2B tech companies right now is the arrival of AI-native challengers that frame the problem, the category and the future differently from the start. That creates a new kind of strategic pressure: incumbents are defending the market narrative itself. 

It’s crucial to understand why AI-native entrants can reshape buyer expectations faster than many established players anticipate, how that changes the positioning burden on incumbents, and why sharper category control is becoming a defensive and offensive advantage at the same time. 

Incumbents + AI versus AI-native 

 An AI-native challenger is fundamentally different from an established B2B technology company that is adding AI to its existing products. Each category has its pros and cons. 

The sheer volume of startups leveraging harnessed frontier AI models is upending established tech companies, who are alarmed at a new slate of erstwhile competitors. They are as yet unsure of how to take any of these upstarts seriously, even while knowing that the existence of so many new entrants is an existential threat. 

For their part, the AI native startups are also battling each other for differentiation for customer mindshare, as well as investor mindshare. 

And on the third side of this standoff, customers and investors are keenly interested in knowing two important things, from the legacy tech companies and AI-native startups alike. Investors want to know: what’s your moat? Customers want to know: what’s your guarantee that you’ll still be around in six months if I sign a year-long contract with you? 

Pros and cons 

One thing is clear: AI-native entrants are reshaping buyer expectations and influencing a market before they have captured significant market share.  

There’s an assumption that AI-native startups deliver significant gains in efficiency and/or performance over existing offerings, and this may in fact be true. Entrepreneurs with market-specific knowledge are well-positioned to use powerful frontier AI models to tackle entrenched inefficiencies or spin up a specific team of agents to quickly link and work across siloed systems and extract new value quickly. 

However, the ubiquity of these models, along with establishment tech’s aggressive adoption of them in-house, means that startups must compete against the value prop of a customer organization spinning up a couple of forward-oriented engineers to make a DIY in-house tool.  

On the flip side, market-savvy entrepreneurs of AI-native startups might find themselves boxed into a more service-oriented business model than they had originally anticipated, as new AI tools often require hands-on adjustments and tweaking on an ongoing basis to ensure that the solution is delivering value as promised. 

These new market realities mean that tech companies – legacy vendors and AI-natives alike – need to anticipate and consider a whole new slew of competitive positioning and messaging and outreach it aggressively and consistently. 

AI natives need to be able to articulate how they won’t be obliterated by the latest frontier model release, and how to meaningfully differentiate between themselves and any number of frontier model-driven alternatives based on public data. 

For their part, established tech companies have the benefit of proprietary data – hopefully – that is increasingly a sought-after differentiator in a market where everyone’s compute strengths are being equalized by AI. And they have the customer relationships. That is an advantage that cannot be taken for granted and requires constant work to deliver the best of both worlds. 

Disruptors: Framing the future differently 

An AI-native startup can make an incumbent’s position feel outdated by changing the frame of reference for what the buyer believes is possible. Instead of competing directly against the incumbent’s capabilities, the startup can frame a future in which those capabilities – or even the category itself dash – are no longer relevant or of the highest value.  

For instance, a legacy company may build its brand on improving an existing workflow for greater speed and/or efficiency. An AI-native startup may then disrupt that model by asking if the workflow still needs to exist. The conversation then shifts from “Which product is better?” to “Does the problem need to be solved the way it always has been?” 

The AI-native startup doesn’t necessarily need major market share to achieve this. If customers start using the startup’s messaging, The established brand may find itself articulating a category definition that no longer exists. This is why positioning is so crucial. Companies today aren’t merely competing on products but on defining and setting customer expectations.  

Incumbents: Evolve without abandoning credibility 

Established companies should adapt their positioning by building on their strengths instead of trying to mimic new arrivals in the market. They don’t want to erase the customer trust they’ve built, of course, but they do need to show that their strengths still matter in the age of AI. 

This entails making a connection between the incumbent’s established advantages – like superior customer service, domain expertise and proprietary data – and customer expectations around AI. The incumbent can simultaneously agree that AI is creating change within the category and that the company’s infrastructure and experience provide an advantage in its ability to deliver new customer expectations at scale. 

What incumbents must not do is simply bolt on AI to their messaging. Company narratives must address customers changing expectations and the pain points the company is now properly positioned to address. However, incumbents need to be careful not to make claims that merely echo the latest AI trend. The trust these companies have built must be maintained – especially when prospects and customers are wondering if AI start-ups will be able to deliver on their promises or even exist a year from now. 

The most effective positioning, then, converges change and continuity. Incumbents can retain the differentiated assets and trust they are known for while repositioning those assets to align with the current market. 

Rethinking market position 

AI-native entrants can reshape buyer expectations faster than many established players anticipate. That changes the positioning burden on incumbents, but they have the established customer relationships, experience and expertise to reposition well. Sharper category control is becoming a defensive and offensive advantage at the same time.