🤖 Software without real lock-in loses its pricing power to AI-built clones

“Well, I try and encourage the teams to build stuff that better meets our needs, and then it can actually be a better solution, and it can be built in-house.”

“there could be two things occurring here, Chamath and Aaron, at the same time, which is a deflation in legacy systems, and they'll be replaced.”

“I think we've already seen this, though, and it hasn't exactly played out as you're saying. And so you already have like a Zoho is this really interesting business.”

“I'm pretty sure that the market here shrinks by an order of magnitude. And instead of fighting over 5 trillion, I think we'll be fighting over 500 billion.”

“But I think next year, the human language will be the dominant programming language”

“You don't need to buy SaaS tools. You don't need to have service providers do stuff for you”

“So, look, I think that on the whole, I agree with Benioff here that there's more net new opportunity for AI companies, whether they be startups or existing big companies like Salesforce that are trying to do AI, then there is disruption.”

“The AI-first ones, I think, are going to come to it with a totally different cost structure. The idea of paying for seats, and some of these seats are 5,000 per person per year.”

“The radical idea that I would put out there is I think that systems of record no longer exist because they don't need to.”

“I saw the Clarnas story where they said they were going to rip out Salesforce and Workday because they were able to write their own bespoke code using AI. I mean, I have to say I'm a little bit skeptical of that story for a couple of reasons.”

“So why not just watch people use Salesforce or Workday? And those are very expensive products, thousands of dollars per user, right?”

“And then you run that against that counterfactual, against Workday or Salesforce. And then at some point, you're like, it's the same. And you just turn it off. And you're saving yourself tens or hundreds of millions of dollars.”

“What's the monopolistic lock-in? The amazing thing about SaaS is that there's no switching cost.”

“Those models will work for other kinds of companies, but I don't think there's going to be a huge disruption to the seat model is my sense.”

“And it doesn't mean Salesforce is a bad company, it's just that it is on the wrong side of the life cycle.”

“is there a shifting underway in the SaaS business model that the premium that SaaS companies were able to charge and the pricing model on a per seat basis and the dollars that they're able to charge per employee or per user is so significant relative to what that enterprise can build themselves now with the commoditization available to them under this new era of AI”

“And that's what I'm seeing on the ground in startups. The same startups that had a request of $3 million in funding five years ago are now requesting $500,000 to a million.”

“One of the emails I got, this is crazy, was from a guy that's like, oh, we've 8090 Photoshop. So we have a much, much cheaper version of Photoshop. And the guy was doing a few million bucks of ARR and growing really nicely. But then it turned out that somebody saw that, and then 8090 did it. So then there was an open source version of that thing. And so to your point, Friedberg, none of these big companies stand a chance.”

“You just get to thinking how all of these vertical software applications become completely personalized and quickly rebuilt around AI.”

“it's like a race to the bottom on pricing for basic commoditizing services in the cloud, like data storage, right?... So my other big takeaway was the cloud is a wide open competitive market right now. Like there is no AWS lock-in in this market”

“The entire Zendesk workflow could be replaced by a handful of these open-source agents, where all of a sudden people can eliminate a lot of op-acks. ... But the point of these AI agents and bots and workflows is that it'll reintroduce the concept of cost savings, of this idea that you can have cheaper, faster and better. And the more that that stuff is open source, my gosh, I think it just makes it very hard for companies that have point products to survive.”

“More competitive, right? We're moving into a hyper-competitive market, especially with AI.”

“The problem now is that an engineer can be hired to build the replacement, and so it creates price compression. So the SaaS company can no longer capture that much value, because the savings is actually less than that, because the enterprise might say, hey, I'm going to hire someone, and instead of spending $60,000 a year on your software, I'm going to allocate a quarter of an engineer's time to build that software, and it's going to replace that cost.”

“all of these companies that are massive outliers to these trends are going to go through a process of getting refactored”

“I still think software businesses and marketplaces, for that matter, are still the best kinds of businesses on a margin profile basis.”

“I don't think that you can justify 80 and 90 percent gross margins in software when you can use a model and whip up a competitor.”

“The great part about this is this is going to be massive competition. It will lower prices, it will add features”

“you look at any particular SaaS category leader and you're like, this is easy, like I could do this. And then when you actually get into it, you realize that, okay, the product I'm seeing is kind of an iceberg.”

“software that doesn't have a fundamental lock-in does not have pricing power, number one. And number two, we are almost at the tipping point of a set of tools that will allow competitors in a matter of days to compete with an 80% feature-complete solution at a fraction of the price.”