AI Will Make Software a Commodity

Anyone can build software with AI soon

What’s a commodity? Some people will say copper is a commodity. Why is copper a commodity? Because copper is fungible. What is fungible? It means that 100gms of copper that I have and 100gms of copper that you have are the same.

When things become commodities, there is no difference between different sellers of the same commodity apart from the price. Commodities force the sellers to reduce the margins as much as possible tending towards zero. As long as you trust the seller, all copper is the same. One seller cannot differentiate their offer from another seller.

However, you cannot say something is a commodity or not a commodity objectively. It’s a spectrum. Some things are less of a commodity and some things are more of a commodity.

Let’s take the example of airline tickets. They are not strictly commodities in a financial investment sense. But airline tickets are pretty commoditized. That means that one economy ticket is not so different from the other provided by a different airline company. All of them use Boeing or Airbus jets. The seats are mostly similar. Colors are different, but that doesn’t matter. The air hostess is equally polite in all the airlines. When different companies cannot differentiate the offers, the margins are thin or almost non-existent.

Commercial airlines have low profit margins, with the industry average at a meager 2.6%. The capital-intensive nature of the industry, extensive competition, and fluctuating demand contribute to these low margins.

Markets become commodities when multiple competitors can enter an industry without having a USP. The only thing they bring to the table is capital. Anyone with 100s of millions of dollars can start their own airline. Not everyone with capital can start an automobile company. Elon Musk can. He can sell a $200,000 sports car via the Tesla brand. No one else can make something like that.

The software was pricey, exclusive, and special, and SaaS companies have been charging an arm and a leg to corporations and small businesses for what they offer. It was not a commodity because not everyone could enter that market. You must be a great engineer or have enough capital to hire great engineers. It was not a commodity because the barrier to entry was high.

Companies like SalesForce and HubSpot were able to get into the SaaS game early, build great functional software with good aesthetics, and capture the B2B market. The ability to hire a great engineering team is no longer a moat because you don’t need a great team to build software anymore. You just need one or two developers who can use AI on the side to build software.

What do developers do anyway? When you think about it deeply, developers and coders are people who can speak the language of computers. We want to give instructions to the computers to behave in a certain way and they don’t understand our language. So developers understood their language and took instructions from us. If I want to build software I tell the developer what I want and he/she tells the computer what I want.

Now AI is evolving in such a way that computers can understand what we say. We might not be there yet, but in 3-5 years I should be able to develop an iOS app completely from scratch with AI tools even without having a developer in-house.

This kind of evolution is already happening in other industries:

• TV, Newspapers, and Radio publications used to have a moat because not everyone could start a media company. Today every person is a media company by themselves.

• Only studios were able to make and publish movies. Now a small team of creative people can make a movie and release it on YouTube.

• Only the best-selling singers were able to get their albums into stores. Now any singer can sell songs via Spotify or iTunes.

• You needed permission from publishers to get a book published. Today anyone can publish a book on Kindle.

I might not be able to launch a web app so easily today because though I have an idea about how it should be and what functions it can do, I don’t have the financial resources or an AI intelligent enough to understand what I want. But this will change in the next 3-5 years.

Just like anyone can be a publisher today, 5 years later anyone will be able to launch their own software company. What will be a moat is not the ability to develop software, but the ability to reach people. Having distribution like a newsletter or an email list that people read regularly will be the moat. Because my relationship with you is built over a period that cannot be replaced so easily.

Developers who learn how to use AI’s help to develop products faster will survive. Others who do not have many skills will be laid off and if they cannot master other relevant skills, they won’t be in demand as they are today. I am already seeing a lot of companies lay off tech people because they don’t need too many tech people in their company. Either the developers have to upskill themselves or they have to learn other skills like how to do marketing and sales.

Human to human connections will be the last frontier that AI cannot touch. No matter how intelligent AI can be, it cannot become a dumb, suffering human. We relate to each other because we suffer. AI cannot suffer. So there is nothing to relate to. AI will work for us, but we cannot be AI’s friends or buddies.