Software as a Commodity > Software Eating the World

The sales engineer was walking me through their unified API platform. It would cost me a huge sum and I’d have to commit for a year. Before the demo was over, I had discovered six other solutions, two of which I could sign up for right away without any commitment. They both cost 90% less, had 95% fewer employees, and hadn’t reported any venture funding.?

It has been 10 years since Marc Andreessen famously wrote the essay, “Why Software Is Eating the World.” In it, he describes how internet companies are building real defensible businesses.?

He was right to an extent, 28% of the S&P 500 is now made up by market capitalization from tech companies and the top seven, all of which are tech, determined the returns.?

If you look back 10 years ago, software creation took capital, time, and people. In today’s world, the cost to create and sell software nears 0.?

Software is as competitive as ever. Every salesperson gets asked, what sets you apart from Y competitors??

What used to take dozens of engineers to accomplish, now takes one. Customers can onboard themselves, driving the cost of sales down and a great product can drive self expansion. It is true and will continue to unfold; AI has been an enabler here.?

If you look into the power laws of VC, any sign of success is followed by severe competition driving down returns.

Stripe, the darling of Silicon Valley worth $50B, is getting squeezed by competitors like Adyen and Checkout. As their customers like DoorDash grow bigger and handle more payments, they are more likely to seek a discount on the fee Stripe charges for each transaction. Doordash has options, Stripe doesn’t.?

Deel caught everyone’s attention when they grew to $100M ARR in 20 months. This incredible feat should remain highlighted. What caught my attention is how commoditized this payroll for a global team platform has gotten, with Remote, Plane, and Oyster raising tens of millions of dollars themselves and existing HR platforms like Rippling moving horizontally to offer global payroll services. I, like many founders, wouldn’t spend more for Deel versus a competing product.

Merge Dev is the unified API software I recently got a demo of that has raised $75m. While their software is sleek, I googled this keyword while on the demo and found six competitors. Two of which looked like teams under ten, charging 90% less, for the same core functionality. I signed up with a competitor.?

Forethought AI has raised $92m to do what many of the ticketing systems they integrate with, like Zendesk, will eventually do themselves. Having built a product in the same space (Caffeinated CX), I can confirm we offer the same functionality, cost ~90% less, have 1/50th the number of engineers, and haven’t raised any outside capital.?

Clear Banc was valued at $2b and recently went through a recapitalization for ~10% of its value. The revenue based financing space was flooded in its heyday with competitors like Settle, Ampla, Wayflyer, 8fig, Pipe, and Shopify Capital offering a similar financing solution.?

These startups all have one thing in common: NO MOAT.?

If you look at this year’s list of Forbes Next Billion Startups, the numbers are scary: on average, these startups have raised 5x their revenue at valuations as high as 90x revenue.?

In today’s world of software development, I could build all of these tools with a lean team and charge next to nothing. My development cost will continue to decrease as AI improves.?

Even in the world of streaming, reflecting back on what Marc Andresson brought to light, Netflix now only has staying power by producing amazing content. As soon as that faucet for content goes dry, there are already a dozen streaming competitors waiting to take that consumer’s subscription.?

The dynamic in venture capitalism has forever changed. Unicorns are no longer the bullseye. Pegasus’s, where great product leads to everlasting profits should be the new norm. What do Google and Craigslist have in common? They raised little venture capital and starting printing profits early on.?

Software is now a commodity. What made a software company in the last ten is not what will make one in the next ten.?

Want to know what I’m investing in? Follow me for chapter 2 :)?