Good News: AI Will Eat Application Software
13 hours ago
- #AI
- #Software Industry
- #Competitive Advantage
- The software industry is experiencing a downturn, with ETFs for public software companies falling by 30% since early 2026.
- AI is seen as a threat to the software industry, but the article argues it will actually benefit the sector in the long run.
- The value of software companies lies not in their code but in their competitive advantages like network effects, brand, and process power.
- AI may reduce switching costs but will also enhance network effects and make high-quality data more valuable.
- Brand remains a strong moat, especially for business-critical functions where reliability is key.
- Process power, or the deep integration of software into organizational workflows, becomes more important with AI.
- Counterpositioning allows new entrants to challenge incumbents with innovative business models, like value-based pricing.
- AI will expand the software market, enabling companies to serve more customers and automate complex workflows.
- The software industry will split into two: vulnerable companies with thin value propositions and those delivering genuine value.
- Overall, AI will lead to a larger, more valuable software industry, despite some individual companies facing challenges.