Is Software Dead?

The day on the AI Daily Brief is software dead?

Before that in the headlines, why I think no one wins in everyone loses after the whole

dust up around a Tropics New Super Bowl ad.

The AI Daily Brief is a daily podcast and video about the most important news and discussions

in AI.

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Now, one last note, I will fully admit that today's headlines is A, not really a headline,

it's just about the Super Bowl story, and B is way, way more ranty than my normal.

There is a lot more op-ed than I normally put into this show.

I unfortunately think that the impact of Anthropic Super Bowl ads, if anything at all, is likely

to be quite negative for the industry.

But hey, there's plenty of critique to go around.

Now I will not blame you at all if you decide to skip over that because who cares?

I certainly think the IS software dead conversation is the much more pertinent one going forward.

So however you decide to consume this episode, I appreciate it, and let's dive in.

Trick or warning, if you work at either Anthropic or OpenAI, you are probably not going

to like the beginning of this episode.

Yesterday, Anthropic absolutely took over the AI conversation when they dropped their

first ever set of Super Bowl commercials.

The commercials do not talk about the basically magic wand we now have in our pockets.

They don't talk about all the things you can do, they don't talk about all the value

that AI could be bringing to people's lives.

Instead, all four commercials then the campaign are focused entirely on OpenAI's planned

forthcoming ads.

In one version, a user asks how to get along better with his mom.

The AI, portrayed as a middle-aged female counselor, delivers some generic advice, then

the AI pivots hard into an ad for mature dating site.

Another version of the ad opens on a scrawny teenager struggling to do pull-ups in the

park, copying one of the shots from last year's Sora commercials.

And this one, the AI is depicted as a muscle bound dude.

It tells the teenager that it's achievable to get a six-pack quickly and offers to build

a workout plan.

Once the AI learns of the user's diminutive height, however, it offers a sale on a pair

of insoles that, quote, make short king stand tall.

He adds each feature in opening titles splashed across the entirety of the screen, betrayal,

violation, treachery, deception.

They all close on the tagline, ads are coming, but not to clawed.

So OpenAI shrugged it off laughing, saying, hey, those were funny, but we're going to do

what we're going to do, right?

Or they employed their God-given right to say nothing and to not have to comment on

every single thing that happens?

Right?

No, they did not.

Instead, they decided to bite back and bite back hard.

CMO Kate Roush writes, those ads are funny.

Here's what's not funny.

Calling ads a betrayal when your business model is selling paid subscriptions to companies.

Chat GPT has more free users in Texas than clawed has globally.

Real betrayal isn't ads, it's control.

Anthropic thinks powerful AI should be tightly controlled in small rooms in San Francisco

and Davos.

That it's too dangerous for you.

That the future should be built somewhere else by someone who is smarter.

We don't believe that.

Sam Altman wrote more than 400 words in response on Twitter, saying, I wonder why Anthropic

would go for something so clearly dishonest.

I guess it's on brand for Anthropic, double speak to use a deceptive ad to critique

theoretically deceptive ads that aren't real.

He also dropped the same line around more people in Texas using free chat GPT than total

people using clawed in the US, even when so far as to call Anthropic an authoritarian company.

Now, it does sound like OpenAI will also have a Super Bowl ad, so we'll see how that

goes.

But a couple quick thoughts about all of this.

So first of all, let's talk about the response.

The short of it is, this isn't how a market leader responds.

There's a famous line in Mad Men where one of Don Draper's employees says, I feel bad

for you.

Draper looks at him deadpan and says, I don't think about you at all.

That's the energy when you're the market leader.

Or you make it playful when they're clearly trying to make it serious.

What you don't do, I don't think, is ratchet it up to claims of authoritarianism.

Or at least you don't before you take a night to sleep on it.

But to be honest, in this particular case, I got more beef with Anthropic.

This move is so out of character for them.

And so wrong headed in so many ways that I'm actually trying to rack my brain to figure

out if there's something that I'm missing.

First of all, what I will say is, the odds are funny.

And I actually think that if you look back at the history of Super Bowl ads, and I've

actually done this numbers crunching before because I made one a few years back, something

like 90% of the top rated ads every year are humor.

They're not serious, they're not uplifting, they're not tear jerkers, they're very,

very few companies who can pull off that sort of highfalutin ad in the Super Bowl setting.

It's the one time a year that people actually want to be advertised to, but they want to

be entertained.

So I am sympathetic to wanting to do a funny ad.

Here's where things go off the rails, though.

I don't think anyone's going to really get the context.

Expecting that users know that OpenAI has said that they're going to do ads in Chatchy

BT is just not realistic.

It would be one thing if ads had already premiered in Chatchy BT and everyone was complaining

about them, but the entire basis for Anthropics campaign is a critique of something that doesn't

exist yet.

It's a pain that people aren't feeling yet.

I think that's going to significantly diminish the impact.

Second, and this is where I start to move from having critique of strategy to being actively

annoyed.

My strong guess is that a pretty big chunk of people who like these ads are going to

like it because it confirms their suspicion that AI is just the latest way that tech

billionaires have come up with to control your life and take your money.

I think that Anthropics is with this ad not primarily taking down a competitor, but

feeding into a critique of the industry as a whole.

I think that these ads make things worse, not better, in a US that is already more skeptical

than basically any other country in the world of AI.

Now as I've said before, people are allowed to be skeptical of AI and the technology industry

has made the bed that we now all lie in.

But there is a tidal wave coming to shore and the net impact of people being annoyed at

AI is just another tech thing, is that they're not paying attention to it and they're not

being prepared for it.

And I think in that, we are doing them a massive disservice.

Finally, this is just the opposite of the brand vibe that Anthropic has spent three

years building.

It's petty, small, doesn't tell any of the stories that have made Claude such an insurgency

recently.

And ultimately, I just kind of think it's sad.

It's not going to stop me from using Claude code for 24 hours a day, but I think when

you take all this together, it is a big L for the entire industry.

Now the funny thing is, for as much as we're talking about these Anthropic Superbowl ads,

they actually weren't the biggest impact Anthropic had on the world this week.

That came when a Claude code plug-in wiped billions of dollars off of the global markets.

So for there, we will end our headlines and move on over into the main episode.

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Welcome back to the AI Daily Brief.

One of the things that happens pretty frequently on this show is that I will start clocking

a theme that I think is having some amount of narrative resonance, either in conversations

on Twitter slash X or starting to break into the mainstream media, but which I don't

think demands a full deep dive yet.

Sometimes those themes dissipate, but sometimes they lurk and grow until they can no longer

be ignored.

That is absolutely what has happened with today's theme, where concerns about AI disruption

have turned into a full on market panic as software sells off.

Now the basis for this won't surprise any listeners of this show.

We have been tracking ever since coming back from the holidays, the extent to which people

are embracing that a fundamental inflection point on the capability set of AI around

coding has shifted the world that we live in.

It's important to note is that this belief set has not been constrained to AI early adopters.

It has started to find its way into other circles, particularly business and financial circles.

A couple of weeks ago, the narrative really started to find its way into Wall Street.

SAS companies in particular began sliding, and things have now reached a full on fever

pitch with Bloomberg and the Wall Street Journal publishing dozens of articles so far

this week.

To give a sense of what's happening, Salesforce is down 21% on the year, Snowflake is down

23%, HubSpot is down 36%, and Applovin is down 37%.

In each case, the fears to sell off happened over the past few days, giving a sense that this

narrative is only accelerating.

Jeffrey Favuza, who works at the equity trading desk at Jeffrey, said,

We call it the SAS Pocolips, an apocalypse for software as a service stocks.

He added that the trading flow he's seeing across his desk is very much get me out style

selling.

What's important to note is that it appears at least at first glance that many of those

racing for the exits have a genuine belief that something meaningfully changed over the

past month.

Michael Rorck, the chief market strategist at Jones Trading said,

I don't think it's an overreaction for two years we've been talking about how AI is

going to change the world and that it is a multi-generational technology.

In the past few weeks, we've seen signs of it in practice.

It's also important to note that this isn't a broad-based tech sell-off.

Apple, for example, is up 2% so far this year and 12% from a local low two weeks ago.

The iPhone stock seems blissfully unaware of the disruption going on around it, even

as Apple fails to put forward a meaningful AI strategy.

At the same time, it is notable that we've had a dozen AI-related sell-off since the release

of Chad GPT in late 2022.

They basically ping-pong between a narrative that the technology is overhyped or that it's

wildly disruptive in some portion of big tech is failing to keep up in the AI race.

This is the first time we've seen the market try to price in broad-based disruption that

could kill off an entire sector and while the focus has mostly been on SAS, another example

showed the market's concerns about AI disruption last week.

We've of course talked about the new test model of Google's Genie 3, where you can generate

entire interactive worlds.

Gaming stocks plunge on that news, with Game Engine creator Unity seeing 35% wiped off

their stock price since Genie 3 came out last Thursday.

Grand Theft Auto Maker Take 2 Interactive saw a 39% drop, which was severe enough for

CEO Strauss-Zelnick to issue a statement, basically that Genie is exciting, but there's

way more that goes into game development than just world creation.

He might be right, but that hasn't made investors any less scared.

Private markets are also taking an absolute pounding, according to Apollo Global Management

co-president John Zito.

Bloomberg reported for the first time on comments that Zito made during the fall.

He argued that tariffs, inflation, and high interest rates are all minor concerns.

Commenting, the real risk is, is software dead.

Apollo already made their move last year, slashing exposure to software and their private

credit funds from 20% to 10% and actively shorting some names.

The broader question is whether the entire business model of software still makes sense

in the AI era.

Isaac Kim, a partner at VC firm LightSpeed who previously worked in tech private equity

commented, technology private equity in its current form is dead.

He added that buying software firms has a clear formula.

The burn rate starts high, but margins increase and leverage increases as the business

boatures.

This model, Kim continued, assumes the underlying product remains relevant long enough for

financial engineering to work.

AI has changed that assumption.

Casey Smith on X called this the great sass meltdown.

Software stock woes he argues are deepening and the old playbook is broken.

One he says high growth low profitability is dead.

The market has stopped rewarding growth at all costs.

If your sass isn't printing cash or showing a clear path to profit by 2026, investors

are out.

Two, the AI question mark.

AI is a double edged sword for software.

Ungrowth durability can these companies stay relevant or will AI agents replace their

core functions?

Unprofitability, inference costs are massive and traditional high margins are getting squeezed.

Finally, there's the seat crisis.

Why pay for 100 seats when AI lets 10 people do the same work?

The per user pricing model is facing an existential crisis.

The bottom line he writes, the era of easy sass gains is over.

Durability and efficiency are the new kings.

And this is where we were heading into a couple of days ago, when the final domino fell

in a way that tipped this conversation into overdrive and made this particular show inevitable.

Believe it or not, the catalyst for the latest market meltdown was a clawed cowork legal

plug-in.

The Wall Street Journal wrote, data provider stocks tumble on AI competition fears.

Run layers Andy Berman wrote, there are hundreds of verticals like these and plug-ins will disrupt

each of them one by one.

Secure access to tools like co-work is going to change how every company operates.

Oh, and RIP billable hours.

And so this is where things are.

Basically markets are freaked as the sand in which they stand upon shifts under their

feet once again.

We have come a long way.

From Mark Andreessen's essay about why software is eating the world that was published

all the way back in 2011.

Since Andreessen wrote that post, software and SaaS in particular has been one of the

easiest long-term bets on Wall Street.

You just park your money there and inevitably over time it goes up.

But it's pretty undeniable that AI is changing the nature of how software gets built.

Tons of people are experiencing this.

CNBC Anchor Deirdre Bosa tweeted yesterday, woke up this morning and said, for fun, let's

try to recreate Monday.com with clawed cowork.

It won't work or anything, but we can just show our audience that it's plausible.

One hour later, I literally have my own Monday.com that's plugged into my calendar and Gmail and

service to kids birthday that was not anywhere on my radar and I need to get a gift for.

Can imagine that next step being order gift and have it delivered by Sunday.

Now she adds to be clear, me being able to vibe code a personal tool is not going to disrupt

the software trade, but someone who does know what they're doing very well might.

The thing is, I'm not so sure people are convinced of that.

It may be in fact that Deirdre being able to vibe code a personal tool is exactly what

disrupts the software trade.

YC founder Chris Pissarski writes, I don't think people are taking this seriously enough.

One of our AEs just got off a demo with a prospect who is building internal sales and

go-to-market workflows with Repplet to replace a sass tool they are currently paying for.

The Repplet agent told him to use our API so he reached out.

He showed us a demo of one of the apps he built, pull a list of everyone who attended a specific

event, enrich each person, run web search on people with only a username, head to priority.

He was non-technical, seeing this trend more and more over the last two months.

But certainly if you listen to the show, you hear a lot of stories like this.

Hell, my head of sales got annoyed a couple of weeks ago that our website still had information

from previous iterations, and instead of asking our engineering team if you could go work

with our previous designer and web flow specialist to change things, only just quad-coded an entire

replacement, and frankly it kicks the slats out of our old website.

So does this mean software is dead?

One of the key counterpoints is kicked up by Prompt Watch's class.

He writes sass is dead, says someone who's never stepped foot in a company with more than

seven people.

The point being of course that many of these stories of disruption are from the absolute

most enfranchised, nimble, highly technically literate, and fast-moving types of companies.

And that the dynamics inside bigger companies are very, very different.

James Blunt expanded the thought.

He writes large enterprises don't run on apps.

They run on decades of layered systems, ERP, mainframes, customer services, data warehouses,

compliance controls, and fragile integrations nobody dares touch without a 12 month change

plan.

AI agents don't just plug in and replace that.

He cautions that there's a difference between markets and the actual lived reality of enterprises.

Stocks he says can move on expectations.

Enterprise architecture moves on risk tolerance.

Those timelines are very different.

In an interview a couple of days ago, Nvidia CEO Jensen Huang spoke about this, saying that

the market is just plain wrong.

The notion he said that AI is somehow going to replace software companies is the most

illogical thing in the world and time will prove it.

Let's give ourselves the ultimate thought experiment.

Suppose we are the ultimate AI, artificial, general robotics, the ultimate AI, the physical

version of us.

You could of course solve any problem because you know, you're humanoid.

You could do things.

If you were a human or robot, would you use a screwdriver or invent a new screwdriver?

I would just use one.

Would you use a hammer or invent a new hammer?

Would you use a chainsaw or invent a new chainsaw?

HubSpot Founder Darmesh wrote, I'm biased, but I wish I could give this 100 likes.

The idea that really hit home for me, if we had the ultimate AI, would it go and reinvent

service now or SAP or other software tools?

Or would it just use the proven tools out there because that's the most efficient way

for it to achieve its goals?

It would use the proven tools.

Dan Jeffries agrees, writing, nobody, and I mean absolutely nobody wants to code and

support every piece of software they use.

This is a total and complete waste of time.

If the market already built what you want and it's good, you're wasting time and money

rebuilding it for nothing.

And nobody wants to do every job either.

You don't want to vibe code the AI accounting software and then support it and verify its

output.

You want the accountants using the AI accounting software.

People are really losing their minds in the distortion field right now.

The reality is we've also seen some of these experiments.

Sebastian Semyotkowski, the CEO of Clarna, is probably the most prominent example of an

executive who explicitly shut down and tried to replace SaaS services like Salesforce.

But a year into the experiment he wrote, I don't think it's the end of Salesforce.

It might be the opposite.

He explained exactly why Clarna was doing it and why it was more than just a grudge against

Salesforce.

But said that the specific considerations that they had and the efficiencies that they

were looking for are likely not going to be worth it for most companies.

He wrote, will all companies do what Clarna does?

I doubt it.

On the contrary, much more likely is that we will see fewer SaaS consolidates the market

and they will do what we do and offer it to others.

On top of that, there's also the fact that a lot of the folks who are running these

companies are quite excited about what AI can do for them.

Going back to the gaming example, for example, Epic Games founder Tim Sweeney wrote,

Genie 3 is amazing.

I prompted it to remake Jill of the Jungle in 3D and it did a reasonable job.

He continued, world models have huge advantages and vast knowledge of the world and ability

to mash up varied content and styles.

Engines have huge advantages in the stable representation of the world, reproducible simulation,

and GPU and power efficient rendering.

And now is on someone saying that he didn't think that Genie 3 was supposed to be generating

Fortnite gameplay effectively bringing up IP issues.

Tim didn't take the chance to sue Google.

He said AI Darth Vader and Fortnite last year and now Gemini's pure world model shows

how fast AI is evolving.

So one of the takeaways here is that anytime you hear anyone talk in extremes, obvious

hyperbole, like Ease X dead, the default answer should always be, of course not.

Of course there is more nuance to this.

However, I also think that in this particular case, the answer, the version that Jensen

gave of Nah, no one's going to bother, they'll just use what exists, is not sufficient

either.

So is there in fact a more nuanced take that recognizes that we are in the midst of

a dramatic shift without assuming that shift means the end of an entire category of business?

Some folks like the Wall Street Journal's Dan Gallagher are focused on the fact that

when it comes to markets, long-term reality doesn't matter, it's short-term expectations.

He wrote a piece called AI Won't Kill the Software Business Just Its Growth Story.

He says software vendors are now in the challenging position of having to disprove a negative.

Showing acceleration and revenue growth would help counter fears of AI disruption, but

that'll be difficult in a time of tightening corporate spending and large scale workforce

reductions.

Layoffs can affect the number of seats that underpin many cloud software contracts.

The big customers that software companies sell to are also investing in their own internal

AI projects that may not be designed to replace the software platforms they use but can

still consume IT budget dollars and management attention.

At the least, he writes that could give customers additional leverage and contract renewal negotiations.

So basically among other impacts, even if it doesn't kill SaaS, it could pretty dramatically

change how it's priced.

Ben Thompson agrees with this.

He wrote, in the shorter term, the real risk I see for software companies is the fact

that while they can write infinite software thanks to AI, so can every other software

company.

The problem now is that while businesses may not want to give up on software, they don't

necessarily want to buy more.

If anything, they need to cut their spending so they have more money for their own tokens.

That means the growth story for all these companies is in serious questions.

And the industry-wide re-rating seems completely justified to me.

It is also the case that we don't need an entire category to die for specific companies

to be wildly disrupted.

Investor Chowang writes, my intuition is that AI makes strong software companies stronger

and weak software companies weaker.

This is because the mode of strong software companies was never software but rather distribution,

proprietary data, workflow integration, enterprise lock-in, network effects, trust and compliance,

etc.

Whereas the mode of weak software companies was just software.

Pavel Asparaho puts it simpler, SaaS's dead is probably oversold and sleepy companies

get wrecked in technology shifts is probably undersold.

Even the people like Steven Sinovsky who are writing thought pieces about how software

isn't going to die are still adding caveats like this one.

It is absolutely true he writes that some companies will not make it.

It is even true that in some very long time, longer than a career or generation,

every company will be completely different or their product line and organization

will have dramatically changed.

And indeed to me that's the more interesting question.

Is not is software dead but how is it going to change who loses from that and who benefits?

One obvious area is the companies that already have the relationships are in a good position

to bring the next generation of software into market.

Why commentator president Gary Tan writes software is not dead.

SaaS without agents may suffer but agent SaaS is alive well in winning.

Tyler Hogwrights the public SaaS turnaround in three steps.

One dramatically cut stock based compensation.

Two aggressively deploy AI agents internally.

Three aggressively transition your product from old school SaaS to agent revenue.

Hard but necessary.

John Lober is optimistic.

He writes maybe we will finally have good software.

He writes many people are writing about the death of B2B SaaS but somehow everyone leaves

out those SaaS products were never good.

Most software is hideously broken.

Terrible UX bugs and obvious functionality that's missing.

People are upset about S&P and Salesforce tanking but what does this really mean?

Today these companies are about extracting value from their market position more so than

really creating new software.

The bar for quality is and how it has been on the floor.

Now that we have AI tooling perhaps what will happen is that these companies will finally

begin to compete on quality.

The average software company can absorb an almost arbitrary amount of AI investment to

finally make their product good.

Not bad.

We may wind up with a similarly structured SaaS market but the software may finally hopefully

be good and pleasant to use.

So my base case is that we are in for an enormous amount of disruption.

I think what's very hard to tell is exactly what categories it's going to be in and how.

To take another example, OpenClaw creator Peter Steinberg recently argued on a podcast

that AI is going to replace 80% of the apps that you have on your phone.

Frankly that strikes me as more plausible than a 50,000 person industrial giant all of

a sudden deciding that they're going to vibe code their own work day.

There's also a lot of unknowns.

After Gokal Rajaram commented on Jensen's point which was again is an AGI just going

to choose the screwdriver that exists.

Gokal writes the challenge with this framing for software companies is that AI chooses

the tool to use and AI will select the optimal tool based on several criteria which change

over time.

This doesn't bode well for a specific piece of software having a long term relationship

with a customer.

If AI can switch them off in favor of a competitive tool, it is the very definition of commoditization.

TLDR delegating tool choice and tool use to AI agents is likely worse for software companies

not better.

To caveat, it's mitigated if humans choose the tool based on prior vendor relationships

and AI simply uses the tool but I see this as a slippery slope and humans will ultimately

delegate the choice of tool to AI.

Now ultimately when it comes to this particular market sell off, it's clear that there's a lot

more going on than just questions about AI and SAS.

Markets are nervous about everything right now they have no solid footing and they haven't

since they started getting skeptical of the AI build out at the end of last summer.

It is very possible in fact likely that in a few weeks everything is resolved and we

see this blip similar to the deep seek moment in January 2025.

In other words, a thing around AI that was a real phenomenon but which was wildly overblown

as markets try to grapple with an unknowable future.

And so the takeaway of that should be some amount of comm when it comes to just how fast

the change is going to be.

At the same time I do think it would be a mistake to blively write off just how significant

the structural change we are part of is.

While I and David Ricardo agree that the theory of comparative advantage suggests that

every company is not going to become an everything company, I think that there are going to be

massive implications for the way that software is priced, the leverage that companies have

or not when it comes to their contracts, the way that procurement happens.

I think that it is almost for sure that in a decade we're using 10 times as much software

as we use now, but I do not know what that means for any individual company that is selling

software.

I think the landscape could look dramatically different.

And so once again, I'm left to actually feeling that the market is accidentally behaving

in a healthy manner, not that it should be reacting so strongly right now, but that this

process of re-rating SaaS might be ultimately healthy.

Whatever the case, I'm sure this is not a debate that we are going to stop having so I will

pause for now.

Appreciate you guys listening or watching as always and until next time, peace.