This is an excerpt from a longer deep dive and was co-written by our partners at Lightspeed. To read the whole article, click here.

Artificial Intelligence’s impact on gaming and interactive media has shaped not only Lightspeed’s investment approach — backing category-defining companies, including Inworld in AI character development, Pika in AI video generation, and Suno in AI music creation — but also how consumers play, work, and connect.

It is still relatively early in the development and consumer adoption of AI applications, but we have already seen foundation models drive significant value, including:

• Text (ChatGPT, Claude, Grok)
• Audio and music (Suno, ElevenLabs)
• Images (DALL·E 3, FLUX.1, Stable Diffusion 3.5, Ideogram, Midjourney)
• Videos (Pika 2.0, Sora, Runway Gen-3 Alpha, Luma Photon, Google DeepMind Veo 2)

These innovations are democratizing content creation for consumers, creators, and hobbyists, allowing them to design and deliver experiences previously accessible only to trained professionals.

Across each of these categories, the models have become exponentially more powerful with each generation. Taking text as an example, GPT-3 to GPT-4 saw remarkable deltas in model size (175B parameters to 1.8T parameters), context window (2048 tokens to 128K tokens), and capability (bottom 10% of test-takers versus top 10% of test-takers).

The pace of progress has also accelerated: OpenAI released GPT-4 in March 2023, and then GPT-4 Turbo in November the same year, delivering a far larger context window. In May 2024, GPT-4o delivered the first truly multimodal large language model twice as fast and at half the cost of Turbo from around six months prior. GPT-4o Mini (July 2024) delivered lower API costs, o1 (September 2024) featured advanced reasoning capabilities, and o3 (December 2024) set benchmarks across coding, mathematics, and science.

Tomorrow’s Expansion: Generative Games

What comes after generative videos? Many consider world models the next major modality in AI.

In machine learning terms, a world model can imagine how a virtual (or physical) world evolves in response to an agent’s — or player’s — behavior. Building on advancements in video generation and autonomous vehicles, these "world simulators" can deliver three-dimensional interactive experiences with temporal and spatial consistency.

For simplified purposes, let’s think of world models as generative or "engine-less" games: virtual worlds that allow user input and respond coherently in real time. Imagine if you could create custom virtual worlds nearly as easily as you might create text or images in ChatGPT today. It’s a big idea!

World models are still early in development and output fidelity, but they already demonstrate various emergent capabilities at scale, including complex character animation, physics, agent action prediction, and object interactivity. World models are trained on large datasets across all other modalities (text, audio, images, and videos) to develop the ability to reason around the consequences of actions.

The implications of world models will be far-reaching — and not only for virtual worlds. Meta’s Chief AI Scientist Yann LeCun described in a recent talk how world models would eventually “understand the (physical) world” and possess the ability to “reason and plan to the same level as humans,” serving as the foundation for complex task execution across consumer (clean my room, wash my dishes) and commercial (robotics) environments that current modalities are not capable of. Many of the near-term applications of world models, however, will likely be the on-demand generation of gaming and interactive media applications or live-interactive video experiences.

Several key questions remain, including the massive amounts of data and computing power required to train and run world models, as well as how to deal with hallucination and model biases.

But if there are lessons to be drawn from previous advances, it’s that things often start a bit wonky but become compelling only a few years later. Before we get into our views on the future impact and potential applications of world models, let’s start with a brief history of how we got here.

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Our Gamification Consulting Services

Today, we’re highlighting our gamification consulting services. Applying game mechanics to all sorts of applications has proven to boost retention, engagement, and revenue – but doing it right can be harder than it seems.

Naavik offers gamification deconstructions, workshops, and ongoing flexible support. Here is what one of our clients had to say.

If you’d like to learn more, reach out here! Also check out our expanded consulting service portfolio here.