Searcharxiv⌕ Search
Home/Archive/arXiv

arXiv · 2605.17812

Going Headless? On the Boundaries of Vertical AI Firms

Muhammad Zia Hydari·Farooq Muzaffar
View original source ↗Read source document ↗Export metadata ↓

Abstract

Vertical AI firms in accounting, law, healthcare, procurement, and similar domains historically bundled workflow, domain logic, and accountability into a single application. General-purpose AI agents are now unbundling that package, prompting founders and investors to advocate "going headless": cede the workflow and interface to agents and expose domain expertise as callable services. This article argues that going headless is correct for some firms and destructive for others, and that the latter often cede their value capture inadvertently through architectural choices that look like interface decisions. This is a boundary question, and the answer turns on distinguishing the interface boundary, which can often move, from the accountability boundary, which often must not. Drawing on Coase's theory of the firm, Eisenmann, Parker, and Van Alstyne's platform envelopment framework, and Teece's analysis of complementary assets and appropriability, the article shows that orchestrators operating through open protocols acquire envelopment power even as technical interoperability improves, and that durable value capture concentrates in cospecialized accountability assets: professional signoff, regulated workflows, evidence trails, and trusted systems of record. The article proposes a three-position taxonomy (component, integrated software platform, dual-track) determined not by sector but by task-accountability regime, and formalizes the construct of rule debt: the future governance, maintenance, and accountability burden that accrues to customer organizations when business rules and professional standards migrate from governed systems into prompts and agent instructions. Four principles follow: decompose by accountability not interface, invert the edges while retaining the core, position rule debt as the customer cost the integrated platform prevents, and avoid single-orchestrator dependence.

Explore related subjects

cs.AI

Keep this discovery

Explore connections, maps & timelines

BibTeXRIS

Muhammad Zia Hydari, Farooq Muzaffar. 2026-05-18. Going Headless? On the Boundaries of Vertical AI Firms. https://arxiv.org/abs/2605.17812

Cite the original work for its findings. Save a collection to share your selection of sources.

KEEP EXPLORING

Related papers

arXiv2026

Decoupling Readiness from Release for Tail-Aware Scheduling of Agentic LLM Workflows

Agentic LLM workflows consist of sequences of model turns interleaved with tool interactions, so their end-to-end completion time depends not only on inference speed but also on when ready turns are released. Most runtimes release each turn immediately upon readiness. Under contention, this eager release policy can accumulate released but unfinished work; once submitted, those turns can no longer be reordered by the workflow-level policy, increasing tail latency. We present a tail-risk-aware turn release scheduling method that jointly decides which ready turn to release next and how much released but unfinished work to maintain. The method uses a mean--Conditional Value-at-Risk (CVaR) objective to capture the evolving tail risk of unfinished workflows, incorporates online estimates of turn work when prioritizing ready turns, and adapts the released work budget to observed queue pressure. We evaluate the method using real agent execution traces from software engineering tasks across multiple LLMs and workflow arrival rates. The method performs comparably to eager release under light load and substantially reduces the P95 of workflow flow time under contention, achieving up to a \(3.50\times\) speedup.

cs.AI↗
arXiv2026

Demystifying the Privacy-Utility Trade-off in LLM Interactions

The integration of Large Language Models into daily tasks relies on context-rich instructions, inevitably exposing sensitive user information. Current privacy-preserving methods typically employ context-agnostic static rules, causing severe utility degradation. However, the specific mechanisms governing how sanitization impacts downstream performance remain largely underexplored. To address this, we conduct a systematic analysis to deconstruct the privacy-utility trade-off, uncovering three underlying mechanisms: (1) Context-Dependent Utility, which first establishes when to sanitize by revealing that data value shifts from critical constraints to dispensable noise based on user intent; (2) Strategic Adaptation, which subsequently determines how to sanitize by dictating that the choice between removal and replacement depends on the task's reliance on factual integrity versus structural coherence; and (3) Combinatorial Interplay, which finally extends the protection scope by demonstrating that attributes form a semantic web of synergistic dependencies or antagonistic redundancies. Guided by these insights, we introduce an intent-driven local protection framework. By distilling a lightweight model Veilmind-4B to drive a dynamic extraction-sanitization-restoration pipeline, our approach reaches a low-leakage privacy point while preserving substantially higher response utility than existing privacy-oriented baselines, advancing the privacy-utility trade-off toward the Pareto frontier.

cs.AI↗
arXiv2026

Defining AI Agents: A Compendium of Criteria, Metrics, and Benchmarks

The term agent in artificial intelligence lacks a standard definition, complicating the evaluation, comparison, and reproducibility of AI agent research. We address this ambiguity through a survey organized around five dimensions of agenticness: environmental interaction, learning and adaptation, autonomy, goal-directed behavior, and temporal coherence. For each dimension, we examine how the underlying capability has been conceptualized across prior work and synthesize the metrics, benchmarks, and evaluation frameworks used to assess it. This review provides a structured account of the current landscape of agent evaluation, highlighting both established approaches and areas where evaluation remains limited or inconsistent. We additionally introduce the Agent Compendium, a public-facing digital resource that organizes and extends the evaluation methods identified through this review. Together, the survey and compendium provide a common structure for evaluating and comparing agent capabilities across AI systems, supporting more reproducible research, clearer communication, and more systematic study of artificial agents.

cs.AI↗