I recently spent a fascinating few hours on a plane building software from scratch using AI. I did this as a thought experiment to get a more tangible sense (as a CEO) of the possibilities of AI-powered software development and to scratch a 25-year-old itch (I started my career writing a ton of code as a technical Founder/CEO and I have to say, I miss it sometimes).

It got me thinking a lot about how AI will affect the Enterprise Software industry, both positively and negatively. It also got me thinking about the implications of how we build software and software companies (but that is a post for another time).

AI will reshape the enterprise software industry, presenting challenges and opportunities for legacy companies. It will open up renewed avenues of competition from new entrants, potentially even customers themselves. It will also impact the expensive customization/integration model and the ecosystem of service companies that supply those services.

As AI enables faster development cycles and more personalized solutions, we could see a shift from generic SaaS models that rely on costly customizations to more tailored solutions (out of the box).

Klarna recently revealed that they have been using AI to develop bespoke, AI-powered solutions in-house, reducing reliance on generic platforms like Salesforce. Coupled with aggressive AI-powered automation, they are reducing both OPEX and FTE.

This is the Canary in the coal mine. It should drive legacy software companies to rethink their business models and product strategies. Not only must they innovate by integrating AI into their offerings, but they potentially need to revisit their entire pricing model.

There has always been and will always be the need to provide customized platforms that deliver specific value to unique customer use cases. But, the legacy model of taking a broad-brush, generic piece of software and leveraging expensive implementation resources to retrofit and customize it, sometimes costing 10X the product's price, is under siege.

The competitive landscape for legacy enterprise software companies will change as serious Vertical Software competition re-emerges. AI enables tightly targeted (niche) software companies with deep sectoral expertise to focus on hyper-specific use cases or verticals more efficiently. These (potentially lean, nimble) niche players can deliver specialized solutions previously uneconomical to pursue, offering tailored features that address unique industry needs ... and, in so doing, provide more significant ROI.

Enterprise Software companies have grown fat and happy charging high prices based on obscure, hard-to-understand pricing models. As competition rises from traditional and non-traditional sources, they will be forced to align pricing more closely with tangible customer ROI.

There are so many more implications, but that's for another post ...

#AI #EnterpriseSoftware #Innovation #BusinessTransformation #VerticalSaaS