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Why software stocks are getting pummelled

economist.com

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Re: Why software stocks are getting pummelled

#91

Post by sublinear »

Sleaker wrote: post #68
keeda wrote: post #43

Earlier quoted context omitted.

Hmm, I wonder if it would be cheaper to hire a couple of software engineers to vibe-code custom SaaS apps on top of the company's existing data layer instead of paying for a hundred different SaaS subscriptions. Financial considerations aside, one advantage of having in-house engineers is that you can get custom features built on-demand without having to be blocked on the roadmap of a SaaS company juggling feature re…

I'm at a large company that is building connections between all of its different financial systems. The primary problem being faced is NOT speed to code things, the primary problem at large companies is getting business aligned with tech (communication) and getting alignment across all the different orgs on data ownership, access, and security. AI currently doesn't solve any of this. Throw in needing to deal with reg…

This is also generally true for all mid to large businesses I've ever worked at.

The code they write is highly domain-specific, implementation speed is not the bottleneck, and their payroll for developers is nothing compared to the rest of the business.

AI would just increase risk for no reward.

Re: Why software stocks are getting pummelled

#92

Post by SimianSci »

nonethewiser wrote: post #79
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. W…

Consider it in the realm of supply and demand. The economics of software will change simply because the tool enables more software to be written. In a way, the barrier of entry into the space of selling software has lowered. It hasnt vanished, but there will be many more entrants and offerings as a result, thus more competition for the existing SaaS companies.

I don't see how the economics of SaaS will remain the same when their value is formed of capital and labor expended, both of which require less now, so please explain how this doesn't lead to an increase in supply and a downward pressure on value?

Re: Why software stocks are getting pummelled

#93

Post by coliveira »

Sleaker wrote: post #68
keeda wrote: post #43

Earlier quoted context omitted.

Hmm, I wonder if it would be cheaper to hire a couple of software engineers to vibe-code custom SaaS apps on top of the company's existing data layer instead of paying for a hundred different SaaS subscriptions. Financial considerations aside, one advantage of having in-house engineers is that you can get custom features built on-demand without having to be blocked on the roadmap of a SaaS company juggling feature re…

I'm at a large company that is building connections between all of its different financial systems. The primary problem being faced is NOT speed to code things, the primary problem at large companies is getting business aligned with tech (communication) and getting alignment across all the different orgs on data ownership, access, and security. AI currently doesn't solve any of this. Throw in needing to deal with reg…

> getting business aligned with tech (communication) and getting alignment across all the different orgs

This is what a CEO is supposed to do. I wonder if CEOs are the ones OK with their data being used and sent to large corps like MS, Oracle, etc.

Re: Why software stocks are getting pummelled

#94

Post by 1718627440 »

rglullis wrote: post #41
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.

> 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.

That's a software engineer that is limited to an mostly untyped macro language, with worse version control and poor tooling. It's not that software can't be written as an Excel spreadsheet, it is that it is just inefficient and failure prune.

Re: Why software stocks are getting pummelled

#95

Post by freejazz »

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.

AI-generated code is not copyrightable and therefore cannot be protected through a conventional licensing scheme.

Re: Why software stocks are getting pummelled

#96

Post by louiereederson »

tossandthrow wrote: post #46
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.

That would justify a good multiple of 5 to 10. Not 30 or above as for high growth companies.

multiple of what? there is maybe one software company trading above 30x revenue - palantir. many companies growing at 20% trade at single digit revenue multiples.

Re: Why software stocks are getting pummelled

#97

Post by dehugger »

datsci_est_2015 wrote: post #87
mattmaroon wrote: post #37

Earlier quoted context omitted.

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…

Our company just went through an ERP transition and AI of all kinds was 0% helpful for the same reason it’s difficult for humans to execute: little to no documentation and data model mismatches.

surprising considering you just listed two primary use cases (exploring codebases/data models + creating documentation)

Re: Why software stocks are getting pummelled

#98

Post by louiereederson »

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…

>My hot take here is that the moats previously enjoyed by SaaS companies will increasingly vanish as smaller and smaller teams can assemble "good enough" solutions that companies will adopt instead of paying giant chunks of their budget on pre-built SaaS tools that will increasingly demand more training to Onboard.

why do people pay red hat/ibm for rhel? they earn pretty good margins too. to parent's point on software/=code

Re: Why software stocks are getting pummelled

#99

Post by coliveira »

kube-system wrote: post #63
deadbabe wrote: post #38

Earlier quoted context omitted.

You can use AI for simple stuff. For everything else, there’s open source.

Open source doesn't implement, host, and support itself. Some of these software companies stocks are companies selling open source software.

Software developers programmed themselves out of a job. They created a huge and growing set of free, tested, high quality software in the form of open source, that can be use for pretty much anything. LLMs will automate a lot of the remaining pieces.

Re: Why software stocks are getting pummelled

#100

Post by epolanski »

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.

Atlassian tools for a client like mine (hundreds of employees) can easily cover the expense of internalizing it. It's Jira plus confluence mostly, it's not rocket science.

And that's just atlassian.

Start adding stuff that costs many many many yearly salaries (special software for managing inventories and warehouses) it starts making sense to prototype alternatives internally.

I came to the conclusion that if it's not Teams/SharePoint or the moat is on the extreme legal complexity side (e.g. payrolls), you can at least think of building an alternative that is good enough without needing to be perfect.

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