The software industry faces a major disruption, similar to how the internet revolutionized the media industry. By studying these parallels, we gain insights into the future of software. Moreover, we see how artificial intelligence (AI), particularly large language models (LLMs), will drive this change. We must face the reality of AI disrupting the software industry.
The Pre-Internet Media Landscape: High Costs and Limited Access
Before the internet, high costs characterized the media industry. Companies paid people to create, edit, and distribute content. Thus, the content had to generate revenue. Consumers paid for newspapers, magazines, books, cable, and pay-per-view services. This subscription-based business model made the media industry attractive, as Warren Buffett famously noted.
The Internet’s Disruptive Impact on Media: AI Disrupting Software Industry Parallels
Initially, media companies saw the internet as a way to reach broader audiences and reduce distribution costs. However, it drove the cost of creating content to zero. User-generated content flourished, leading to a Cambrian explosion of content. As a result, user-generated content platforms emerged to direct attention and route users effectively.
These platforms disrupted traditional media companies. They competed for the same user attention but with higher costs of goods sold (COGS). The more people a media company had creating content, the more vulnerable it became. Consequently, investing in media has been a losing proposition, with value shifting to distribution platforms.
The Current Software Landscape: Ripe for AI Disruption
Creating, maintaining, and distributing software is expensive. Due to high costs, software has to generate revenue. Consumers pay for software licenses, SaaS, per-seat pricing, and other models. Software margins have been impressive, with 90+% margins and zero marginal cost of distribution.
The high cost of software is due to the expense of hiring developers. They translate between human and computer language. However, LLMs are remarkably efficient at this translation. As a result, they will drive the cost of creating software to zero. AI disrupting the software industry is inevitable.
The Future of Software in the Age of AI: A Cambrian Explosion
As software creation costs approach zero, we will experience a Cambrian explosion of software. This is similar to what happened with content when the internet emerged. A constellation of solutions will replace monolithic software companies like Salesforce. They will dynamically serve the same intent and pain points. This is just as thousands of influencers replaced Vogue.
The old model of software business building will become less relevant. The expense associated with creating software will cease to be a moat. LLMs will usher in a swift corrective force. The invisible hand has been stayed in the software industry for too long. However, the AI disrupting software industry transformation is underway.
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Conclusion: Embracing the AI Disrupting Software Industry Revolution
The parallels between the internet’s impact on media and AI’s impending disruption of software are striking. As LLMs drive down software creation costs, we can expect a proliferation of new solutions. Additionally, value creation will shift to distribution platforms. Just as majoring in journalism in the late 90s became less valuable, majoring in computer science today may face a similar fate. AI is transforming the software landscape. The AI disrupting software industry revolution is upon us.
Key Takeaways
- AI, particularly LLMs, will disrupt the software industry like the internet disrupted media
- Software creation costs will approach zero, leading to a Cambrian explosion of software
- Constellations of solutions will replace monolithic software companies
- Value creation will shift to platforms that control software distribution
- The old model of software business building will become less relevant
