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Why software stocks are getting pummelled

economist.com

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Re: Why software stocks are getting pummelled

#71

Post by skissane »

llmslave wrote: post #21
skissane wrote: post #7

Earlier quoted context omitted.

For a lot of SaaS firms, a big part of their value is the domain knowledge and best practices encoded in the software. Current AIs often do a bad job of that. Sure, they know a lot of it. But they also get a lot of it wrong, and can’t tell the difference between genuinely good advice, and advice that sounds good but is practically worthless or even harmful. (Of course I’m biased since I work for a SaaS firm. But I’m…

ai will know the domain knowledge

I'm not sure how realistic it is to expect AIs to get detailed hands-on domain knowledge. A lot of this stuff humans learn by doing and by experience. AI models don't learn anything by doing and experience. A model vendor can't possibly encode all that experience into their training data, and even if they try, the problem is a lot of it will be vertical-specific, country/region-specific, and it is forever changing. SaaS firms have professional services and sales consulting teams who are constantly talking to customers about their actual business problems, and they feed that accumulated wisdom back to product management and data science, who in turn help engineering encode it into the product.

From what I've personally seen in SaaS AI agent development – if you try to build an AI agent to give customers advice in a particular business domain, you need to do a huge amount of work validating the answer quality with actual domain experts, and adjusting the prompts / RAG documents / tool design / etc to make sure it is giving genuinely useful advice. It is really easy to build a system which generates output which sounds superficially good, but an actual domain expert will consider wrong or worthless.

Re: Why software stocks are getting pummelled

#72

Post by falloutx »

SimianSci wrote: post #35
lateforwork wrote: post #6

> The fear is that these [AI] tools are allowing companies to create much of the software they need themselves. AI-generated code still requires software engineers to build, test, debug, deploy, secure, monitor, be on-call, support, handle incidents, and so on. That's very expensive. It is much cheaper to pay a small monthly fee to a SaaS company.

"Small Monthly Fee" is a very loaded term here. Im in the negotiations for these platforms, the price that many of these companies command for their products will very often pay the salaries of a whole software department. Add to this the quality of support being the lowest possible option above "nonexistant" and I would say the risk to these SaaS companies is real. The real benefit of these types of SaaS offerings w…

Saas was always fueled by B2B buying through same investor circle. sequoia companies buying from other sequoia companies, softbank companies buying from other software companies. Without this circular buying and selling of the software, the whole B2B software market crashes.

Re: Why software stocks are getting pummelled

#73

Post by KellyCriterion »

themafia wrote: post #56
SimianSci wrote: post #50

The Value of software is going down, this much is clear to most people. It will continue to demand proper engineering for its creation and operation. But AI will lead to an increase of unique one-of-a-kind systems created by very small teams. And the world will increasingly rely on these unique systems. SaaS companies need to start reading the writting on the wall, their massive valuations enjoyed when software was h…

> this much is clear to most people. There are more computers now than there ever have been. More people in more parts of the world have them than ever before. If you have this perspective you may just be locked in a first-world corporate nightmare that has stolen from you all vision and imagination.

TRUE! Actually the world around is controlled already by computers ~ chips: Your car, your dishwasher, your metro, your holidayjettravel etc.

And it becomes "worse": Billions and billions of chips ~ compusters are produced every year, the number is increasing.

Billions of people will get access to the stuff that was around for us "since ever" for the first time in their whole life.

Re: Why software stocks are getting pummelled

#74

Post by paulpauper »

mattmaroon wrote: post #37
lateforwork wrote: post #6

> The fear is that these [AI] tools are allowing companies to create much of the software they need themselves. AI-generated code still requires software engineers to build, test, debug, deploy, secure, monitor, be on-call, support, handle incidents, and so on. That's very expensive. It is much cheaper to pay a small monthly fee to a SaaS company.

A lot of these companies are not small monthly fees. And if you’ve ever worked with them, you’ll know that many of the tools they sell are an exact match for almost nobody’s needs. So what happens is a corporation ends up spending a lot of money for a square tool that they have to hammer into a circle hole. They do it because the alternative is worse. AI coding does not allow you to build anything even mildly complex…

Modern AI probably could’ve done almost all of the work for him.

no way. We're not talking a standalone AI created program for a single end-user, but entire integrated e-commerce enterprise system that needs to work at scale and volume. Way harder.

Re: Why software stocks are getting pummelled

#76

Post by falloutx »

firstplacelast wrote: post #28
lateforwork wrote: post #6

> The fear is that these [AI] tools are allowing companies to create much of the software they need themselves. AI-generated code still requires software engineers to build, test, debug, deploy, secure, monitor, be on-call, support, handle incidents, and so on. That's very expensive. It is much cheaper to pay a small monthly fee to a SaaS company.

Stock prices are very forward looking, so if half the hype being sold about AI is true I would expect most software-centric companies to be devalued by wall-street (as the test, deploy, support should be automated in the coming years...according to the AI CEO's). However, if I was a wall street analyst and believed the AI dreams I would further be concerned that software companies aren't taking advantage of the last…

>If you've got a gold mine and have recently built the most efficient shovels in the world, why are they not bringing in mass amounts of workers to utilize these shovels before all the neighboring mines

Because they are completely consumed by the need to increase margins, which they think they will be able to do it with AI by laying off a lot of people. But Saas economy is connected and based on per user pricing, so as layoffs continue, Saas economy is showing its biggest weakness. All of Saas companies also seem to embrace AI so much that they would rather add another summarise button rather than actually making something which cant be copied easily by competitors.

Re: Why software stocks are getting pummelled

#77

Post by rglullis »

zdw wrote: post #48
rglullis wrote: post #41

Earlier quoted context omitted.

> AI-generated code still requires software engineers No, they don't. A domain expert armed with an Excel spreadsheet and the ability to write VBA macros will be enough for most business.

Excel spreadsheets have little to no validation logic that you're actually getting a good result, unless you have a secondary check (most spreadsheets are structured as "single entry" accounting, so lack the checks) A prime example of this was the Reinhart/Rogoff paper advocating austerity that was widely quoted, and then it was discovered that the spreadsheet used had errors that invalidated the conclusions: https:/…

You are taking my comment way too literatlly.

The point is not that people will be using specifically Excel, but that most business only pay for software because it is the tool that gives them the most power to automate their processes. They don't need high availablility, they don't need standards compliance, they don't extensive automated tests, they won't need cloud engineeers and SRE... all you need is some tool that can get the results your are looking for right now.

Academia already works like this. Software wrtiten for academic purposes is notoriously "bad" because it is not engineerd, but that doesn't matter because it is good enough to deliver the results that researchers need. Corporate IT will also start looking like this even at mid-sized companies.

Re: Why software stocks are getting pummelled

#79

Post by nonethewiser »

SimianSci wrote: post #50

The Value of software is going down, this much is clear to most people. It will continue to demand proper engineering for its creation and operation. But AI will lead to an increase of unique one-of-a-kind systems created by very small teams. And the world will increasingly rely on these unique systems. SaaS companies need to start reading the writting on the wall, their massive valuations enjoyed when software was h…

I dont actually think it changes the economics of software as a service much. What's true for the small scale is true for the large scale. Sure, it's easier to build your own HR platform now but it's also easier to write and maintain it at scale with all your domain knowledge, legal infrastructure, etc. This seems true for inventory management, document signing, ecommerce, expensing, crm, training, accounting, etc. Why wouldn't the offerings from services providers get better and cheaper (relatively)?

The stuff you do in-house is probably still going to tied deeply to your internal processes. Admin dashboards, special workflows integrating with different systems, etc.

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