🤖 The software industrial complex cracks in 2025

“Enterprise application software... 2025 is going to be the year of agents... if the labs and the big cloud providers dominate agents, which seems likely, enterprise application software is going to be in a lot of pain... they don't have their own models, they don't own their own compute.”

“The software industrial complex — large, bloated enterprise software companies... wrapping heuristics around a CRUD database... you're going to start to see fissures in those businesses in 2025. [Disclosed skin: founded 8090 to attack exactly this — 'my 30% engineering team does the work of 300 people... you show up and say $10' where incumbents charge $100.]”

“I'm probably just going to triple underline vertical SaaS again. Per-seat pricing model being challenged, pricing being compressed as companies explore in-house tools built with AI.”

“if you look inside of any org chart of any company, you can map those jobs to some clunky old piece of software that was sold to them. Maybe it was 10 years ago. Maybe it was 20 years ago. But that's why orgs are this bulky. And now when you have all of these new next-gen businesses that are ripping all of that software out, the middle management layers that used to manage that software are no longer necessary. That's why you're not hiring MBAs. And I think that this trend is only going to grow.”

“And if you look at Jamie's P&L, he spends $16 billion a year on IT. And I suspect that if you streamline that, you'd actually have half as many people because they'd be doing the job in a wholly different way... by adopting the off-the-shelf stuff, he introduces organizational bloat”

“Yeah, you got the marketing team, as you mentioned, using HubSpot, and then you got the sales team using, I don't know, sales force.”

“It's more still about the frustration that they have with what I would call the software industrial complex. There's a big, and you can see it with what's happening to Salesforce and other big companies is that these renewal cycles are getting harder and harder to justify. And so people are willing to take some bets and see if there are different ways in dealing with this problem.”

“But I do think you have to look at the earnings of these companies and question where's all of these”

“Well, you could take a three-person team to disrupt a 30,000-person team and blow a hole right in the side of that 3 trillion-dollar economy. That's the big risk... And that is, and maybe even two orders of magnitude, that is incredibly disruptive because the existing incumbents cannot compete with that cost scale.”

“And so lots of implications, like massive implications to what the software business model is in the future. I would argue strongly that it's a massive TAM increase because now software starts to go after labor spend. It completely changes the dynamics of then, you know, how do you build a moat in a world of AI agents?”

“Let me say it differently, Sacks. I think we have not yet figured out how to move the budgets from experimentation to mainline production, meaning where large chunks of the US economy are comfortable enough with the ways in which hallucinations are managed such that they will replace legacy deterministic code with this new probabilistic model-generated code, meaning model-enabled code.”

“I don't think this SaaS market ever had the return on equity that it was supposed to. And I think so many companies have woken up from this hangover saying, there's got to be a better way. ... And I think that the jig is totally up for software.”

“the response from the SaaS industry is changing from the per-seat model as the number of employees at these companies continues to get lowered. ... They're moving from the per-seat model. They're not taking this laying down.”

“I think, and this is order of magnitude correct, that Anthropic in Q1 added 70% of the net new AR in the SaaS industry, right? Defined by public SaaS companies, right? So let's just think that the company in AI that is most powering, the disruption of SaaS, added three quarters of the net new of the entire industry”

“I only say that because I do think that there's a real probability of revenue decline in the next five years. If you look at the enterprise install base, I think that Cloud gets competed away. I do think on the application software layer, they're going to have a really hard time in this new world, because the old school customers that buy Microsoft are going to die. ... I think that Microsoft's core business is going to decline. The losers are their biggest customers and the winners are not going to use them.”

“And so I think in the IPO, what you're probably going to see is people approach this company the same way that they approach all non-core AI IPOs, which is that it's a business that you love to own for a year or two, but if there's a depression in valuation, it's because people cannot underwrite years three, four and five.”

“So this land and expand has proven out and there's real durability, it looks like, to this business for now. But to Chamath's point, like what is three to four years from now look like? Does this get absorbed into ChatGPT? You could say that about any software at any point in time.”

“We've been selling into the enterprise at 8090. This is our first full year of business — we'll do about $40 million of bookings... all back-office type stuff... you can get extremely high rates of accuracy if you implement AI correctly in back-office tasks. [MIT study: 95% of gen-AI pilots failing] paints a very accurate picture — we now need to go through a sorting and a cleansing.”