AI Disrupts Software Industry

Andrew Wilkinson believes the software business landscape is dramatically changing, with traditional software companies facing unprecedented challenges due to democratized development tools and increased competition. He argues this shift will happen rapidly, potentially within a 2-year timeframe rather than the typical 10-year outlook.

• Competition Defines Business Quality:

  • In free markets, less competition equals better business
  • Example: A single restaurant with no competition could charge premium prices with high margins
  • Same principle applies to software businesses

• Historical Software Success:

  • Vertical markets (niche businesses) thrived due to limited competition
  • Examples: funeral home management, golf course management software
  • Companies like Constellation Software built $70B business buying such companies
    • Acquire ~100 companies per year
    • Focus on $3-10M revenue businesses
    • Simply increase prices on schedule without major improvements

• Current Threats to Software Business:

  • Tools like Replit make basic software reproduction extremely easy
  • Basic case management software can be replicated in 10-20 minutes
  • No coding knowledge required to build software
  • Software becoming increasingly commoditized

• Future Investment Strategy:

  • Being extremely conservative when evaluating software deals
  • Focusing more on communities and social networks
  • Only interested in software with:
    • Hardware components
    • Strong lock-in effects
    • Unique competitive advantages
    • Cost advantages

• Counter Arguments (via Shaan Puri):

  • Enterprise software likely to remain stable due to:
    • Security requirements
    • Professional support needs
    • Risk management preferences
  • Social networks/communities protected by network effects
  • Last 10% of software development remains challenging
  • Value often lies in relationships and data, not just code