The AI Daily Brief: Artificial Intelligence News and Analysis - Is Software Dead?

Starting point is 00:00:00 Today on the AI Daily Brief, is software dead? Before that in the headlines, why I think no one wins and everyone loses after the whole dust up around Anthropics' new Super Bowl ad. The AI Daily Brief is a daily podcast and video about the most important news and discussions in AI. All right, friends, quick announcements before we dive in. First of all, thank you to today's sponsors. Optimizely, robots and pencils, blitzie, and super intelligent. To get an ad-free version of the show, go to patreon.com. slash AI Daily Brief, or you can subscribe on Apple Podcasts.

Starting point is 00:00:36 If you're interested in sponsoring the show, send us a note that sponsors at aIDdailybrief.aI.i. And lastly, one more chance, one more request for you to fill out the January AI usage pulse survey. Again, this is a survey we're doing to try to figure out what models were most used, what use cases were most prevalent, where people got the most value, and generally put some real numbers and real experience around how we're all using AI. You can find it at AIDailyBrief.aI, and it'll be closing at the end of the day on

Starting point is 00:01:03 Friday. Thanks to everyone who has participated. Can't wait to share what we've learned. Now, one last note, I will fully admit that today's headlines is A, not really a headline, it's just about the, 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,

Starting point is 00:01:42 and let's dive in. Trigger warning, if you work at either Anthropic or Open AI, 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 in 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, deliver some generic advice, then the AI pivots hard into an ad

Starting point is 00:02:22 for a 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. In 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. The ads each feature in opening title 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 Open AI shrugged it off laughing, saying,

Starting point is 00:02:56 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 Rausch, 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. ChatGPT has more free users in Texas than Claude 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.

Starting point is 00:03:33 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 Claude in the U.S. He even went so far as to call Anthropic an authoritarian company.

Starting point is 00:03:56 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 ratcheted up to claims of authoritarianism. Or at least, don't before you take a night to sleep on it. But to be honest, in this particular case, I got

Starting point is 00:04:33 more beef with Anthropic. This move is so out of character for them and so wrongheaded 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 here. humor. They're not serious. They're not uplifting. They're not tear-jerkers. There are 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

Starting point is 00:05:13 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 chat GPT is just not realistic. It would be very much. It would be very much. It would be one thing if ads had already premiered in chat GPT 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

Starting point is 00:05:53 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 Anthropic 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 U.S. 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're

Starting point is 00:06:32 doing them a massive disservice. Finally, this is just the opposite of the brand vibe that Anthropica spent three years building. It's petty, small, doesn't tell any of the stories that it 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 Super Bowl ads, they actually weren't the biggest impact Anthropic had on the world this week. That came when a Claude Code plugin wiped billions of dollars off of the global markets.

Starting point is 00:07:11 So for there, we will end our headlines and move on over into the main episode. Most marketing and digital teams don't have an AI ideas problem. they have an execution problem. Lots of pilots, experiments, and tools, but very little making it into real living, breathing workflows. AI sounds powerful, but scaling it without slowing teams down, or breaking brand and governance is still hard. Content, experimentation, personalization, approvals, all the stuff that eats your week. That's why Optimizely is hosting agents in action, a free event focused on putting agentic AI to work in real marketing and digital teams. You'll see how AI agents can support real workflows, not demos, and not hype. It's built for leaders and

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Starting point is 00:10:59 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. What'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

Starting point is 00:11:40 Wall Street. SaaS 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 fiercedest sell-off happened over the past few days, giving a sense that this narrative is only accelerating. Jeffrey Favuzza, who works at the equity trading desk at Jeffrey said,

Starting point is 00:12:09 we call it the SaaSpocalypse, 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. And 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 Rourke, 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

Starting point is 00:12:37 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.

Starting point is 00:13:05 They basically ping-ponged 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 SaaS, another example showed the market's concerns about AI disruption last week. We of course talked about the new test model of Google's Genie 3, where you can generate

Starting point is 00:13:28 entire interactive worlds. Gaming stocks plunged on that news, with Game Engine Creator Unity seeing 35% wiped off their stock price since Jeannie 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 Jeannie 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,

Starting point is 00:14:03 inflation and high interest rates are all minor concerns, commenting, the real risk is, is software dead? Now, 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 matures. This model, Kim continued, assumes the underlying product remains relevant

Starting point is 00:14:41 long enough for financial engineering to work. AI has changed that assumption. Casey Smith on X called this the great SaaS 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 SaaS 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. On growth durability, can these companies stay relevant or will AI agents replace their core functions? On profitability, 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

Starting point is 00:15:22 crisis. The bottom line, he writes, the era of easy SaaS 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 Claude Co-Work 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 plugins 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

Starting point is 00:16:02 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 Deer Drabozo tweeted yesterday, woke up this morning and said, for fun, let's try to recreate Monday.com with Claude Co-work. 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

Starting point is 00:16:43 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 the 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 AE's just got off a demo with a prospect who is building internal sales and go-to-market workflows with Replit to

Starting point is 00:17:18 replace a SaaS tool they are currently paying for. The Replit agent told them to use our API, 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, had to priority. He was non-technical, seeing this trend more and more over the last two months. And certainly if you listen to this 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 he could go work with our previous designer and Webflow specialist to change things?

Starting point is 00:17:52 A homie 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 Watches-Claas. 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.

Starting point is 00:18:18 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, custom 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.

Starting point is 00:18:45 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.

Starting point is 00:19:06 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'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?

Starting point is 00:19:38 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.

Starting point is 00:20:04 If the market already built what you want and it's good, you are 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. 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 Semy Takowski, the CEO of Klarna, 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

Starting point is 00:20:39 exactly why Klarna 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 Klarna does? I doubt it. On the contrary, much more likely is that we will see fewer SaaS consolidate 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, Epic Games founder Tim Sweeney wrote, Geney 3 is amazing. I prompted it to remake Jill of the Jungle in 3D, and it did a reasonable job.

Starting point is 00:21:13 He continued, world models have huge advantages in vast knowledge of the world and ability to mash up varied content and styles. Engines have huge advantages in a stable representation of the world, reproducible simulation, and GPU and power-efficient rendering. And that was on someone saying that he didn't think that Jeannie 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 what are the takeaways here is that any time you hear anyone talk in extremes, obvious hyperbole, like, is X dead?

Starting point is 00:21:50 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 its short-term expectations.

Starting point is 00:22:24 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 counterfears 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 mini-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.

Starting point is 00:22:54 At the least, he writes, that could give customers additional leverage in contract renewal negotiations. So basically, among other impacts, even if it doesn't kill SaaS, it could pretty dramatically changed 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

Starting point is 00:23:31 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 Chow Wang writes, my intuition is that AI makes strong software companies stronger and weak software companies weaker. This is because the moat 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 moat of weak software companies was just software. Pabal Aspera-Ho puts it simpler. SAS is dead is probably oversoul. and sleepy companies get wrecked in technology shifts is probably undersold. Even the people like Stevensonovsky who are writing thought pieces about how software

Starting point is 00:24:09 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.

Starting point is 00:24:32 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 Combinator President Gary Tan writes, software is not dead. SAS without agents may suffer, but Agent SAS is alive well in winning. Tyler Hogg writes, 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.

Starting point is 00:24:57 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

Starting point is 00:25:28 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, OpenClaug 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

Starting point is 00:26:02 all of a sudden deciding that they're going to vibe code their own workday. There's also a lot of unknowns. Investor Gokul Rajaram commented on Jensen's point, which was again, isn't AGI just going to choose the screwdriver that already exists? Gokul 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

Starting point is 00:26:25 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. Caviard, 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 SaaS. markets are nervous about everything right now. They have no solid footing, and they haven't since they started getting skeptical of the AI buildout at the end of last summer. It is very possible, in fact,

Starting point is 00:27:03 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 calm 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 blithely write off just how significant the structural change we are a 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

Starting point is 00:27:42 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 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 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.

Starting point is 00:28:11 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.

The AI Daily Brief: Artificial Intelligence News and Analysis - Is Software Dead?

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