Thinking About AI-Driven Software Disruption
Regardless of Software sector, when an Application Software company tells investors they are “investing in AI”, it is important to get clarity as to what that means in order for investors to assess competitive differentiation.
Is the company deploying a machine learning process on the back-end to predict customer churn?
Is it leveraging Gen AI to create legal documents, marketing copy and/or to review software code?
Is it embedding Gen AI into its applications so that end-users may engage via natural language?
When it comes to embedding AI capabilities into end-user applications, most Application Software companies are primarily building on top of OpenAI and Anthropic. Google Gemini to a lesser extent (although I believe that Google will make steady share gains).
Therefore, if Software companies have an off-the-shelf LLM at their core, competitive differentiation becomes a question of delivering customer value by way of the software wrapper. Differentiation does not exist at the product core if all applications in a given sector are powered by the same two or three LLMs.
When I assess a software product’s prospective ROI, I consider an application’s: 1.) speed, 2.) reliability, 3.) level of intuitiveness, 4.) price and, 5.) the specific functionality provided.
LLMs are available to incumbents and would-be disruptors alike. Therefore, a company CEO that declares “We will disrupt XYZ market because we are embedding AI into our applications” is not a valid argument. Embedding LLMs in your software applications is not a defensible competitive advantage. Any Software company can embed LLMs into their applications.
The question is: “How do you leverage LLMs within your application such that it generates incremental customer value?” New AI-related features and functionality delivered by a fast, clean-looking application at an affordable price - that’s something to get excited about!