A startup AI integrator, flush with a recent cash infusion, plans to expand its product-service deployment approach to more enterprise customers and cultivate a partner ecosystem.
Distyl AI raised $175 million amid a $1.8 billion valuation, setting the stage for expansion, according to a Sept. 23 announcement. The San Francisco-based company, which launched in 2022, said it works with Fortune 500 businesses in healthcare, telecommunications, insurance, manufacturing and financial services.
The company aims to bridge a gap in the market between the promise of AI and customers' ability to derive value from the still-evolving technology, Arjun Prakash, Distyl’s CEO and co-founder, told Channel Dive.
"The technology is being refined and developed at the same time as adoption in the enterprise," Prakash said. "These [stages] usually tend to happen sequentially, and we need to then solve for that.”
As Distyl looks to scale, it faces an enterprise market eager to move from the pilot phase of AI to using the technology to meet its critical business goals. However, the challenge for adopters lies in a shaky data foundation, a lack of AI engineering skills, and an often unclear ROI.
Distyl’s response is what Prakash described as a vertically integrated offering that combines engineering services, products and research. The company’s engineers design and implement AI systems. On the product side, the Distillery AI platform transforms customers' organizational knowledge into AI-driven workflows. Distyl also provides AI systems research.
The startup embeds this three-pronged offering within customer teams — and shares accountability for the results. Indeed, part of Distyl’s project fee is tied to achieving a client’s objectives.
"You need to forward deploy it at the clients to own the outcome with them," Prakash said.
The Palantir connection
Distyl’s forward-deployed approach is associated with Palantir, a data analysis software company that recently reached an annual revenue run rate of over $4 billion. Prakash and Distyl co-founder and COO Derek Ho previously worked for Palantir in business development roles.
The forward-deployed engineering approach has begun to surface in the broader IT services arena, Boz Hristov, professional services principal analyst at Technology Business Research, told Channel Dive in an email interview.
"The FDE model is gradually picking up steam in the market, at least from a labeling [and] marketing standpoint," he said.
IT services firms such as Accenture, Cognizant, Deloitte and PwC use FDE terminology in their job and career announcements. The same holds true for some federal IT service vendors such as Booz Allen Hamilton, Leidos and SAIC, Hristov said.
Partnering with the customer
The shared responsibility baked into forward-deployed teams resembles co-sourcing or co-managed business models, which feature tight collaboration between a customer and a technology partner — as opposed to outsourcing, which can minimize the role of in-house IT staff. Distyl’s AI platform facilitates collaboration, according to Prakash.
The company aims to make its technology accessible to customers' business leaders.
"Too many of the technology products that are out there today have been built for engineers and software developers," Prakash said. "Our big focus is on building technologies and products that are accessible and usable to the subject matter experts [and] the industry experts."
The connection between the platform, Distyl’s engineers and customers' in-house experts — who provide feedback on AI-generated workflows — is critical for moving AI pilots into production.
"Without the subject matter experts, there's no chance we're able to go into production, Prakash said.
Billing based on outcomes
Distyl’s revenue model is also built around shared responsibility.
"We offer our services [and] we tie the services to the outcomes of the clients," Prakash said. "We find that to be a helpful model in contrast to the time-and-materials model that is more traditional."
Technology consulting firms have historically used time-and-materials contracting when pricing engagements. Outcome-based contracting, however, has gained popularity in recent years as customers seek to share risk with their vendors. The outcome-based method ties some or all of a contractor's fee to its ability to meet specific business objectives. Time-and-materials contracting, in contrast, offers customers expertise measured in billable hours.
Distyl also generates revenue from product licensing fees: Customers use its platform to maintain their AI systems on an ongoing basis.
"Our clients have found that our products significantly accelerate time to value and allow them to operate these AI systems at a very large scale," Prakash said.
Hristov said FDE, in conjunction with outcome-based contracting, has an opportunity to work. But he added that smaller, more nimble companies have an adoption advantage. Large service providers face the challenge of scaling the approach across their workforce and evolving their commercial models to account for outcome-based pricing.
Building a partner ecosystem
Partnerships are another cornerstone of Distyl’s strategy. The company currently works with large language model providers OpenAI and Anthropic and uses Microsoft's Azure platform for infrastructure.
Distyl is also expanding its partnerships with what Prakash described as functional-expertise organizations.
"These are companies with expertise in clinical operations, or insurance operations or supply chain operations," he said. "Bringing that to bear is really essential to help us effectively run large complex programs for our clients and undertake these complex re-architectures."
Prakash said building a partner ecosystem is critical for the success of Distyl’s clients.
"It's a thing that we think a lot about," he said. "We're at such early stages of adoption. It is very important to partner effectively with all the members of the ecosystem."
