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10 years building vertical software: are we cooked?

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Re: 10 years building vertical software: are we cooked?

#31

Post by followben »

fnord77 wrote: post #6

Was this generated by AI? Anyway, I dispute that there's "zero switching" costs to go from proprietary keyboard shortcuts to english sentences as the interface. In the bloomberg example, the shortcuts are precise. LLM's responses are not always what you want. Imagine being a vim or emacs user and have those replaced by something you have to type entire sentences for functionality. "Public Data Access → Commoditized"…

So many hallmarks of LLM authorship (the arrows, the framing, the unnecessary fluff, the big important-sounding words). Not to mention the vested interests of the author. Let’s just call it what it is: bullshit. No signal, just noise.

Re: 10 years building vertical software: are we cooked?

#32

Post by tptacek »

I think this is more interesting as a rubric than as a prediction. I agree with some of it and not with others; I don't know if we're "cooked" or not; I do like how they've broken vertical software's moats down though.

1. I don't buy that chat interfaces will replacing existing user interfaces. I'm in particular a little bit familiar with Bloomberg's user culture. I don't know that I buy that it's going to be replaced with LLM chat prompts. But software agents are going to make faithfully reproducing those existing user interfaces much easier, so: half credit?

2. Half credit again on LLMs vaporizing the "business logic" moat, because the vertical-specific rules that justified the original software market are I think a lot harder to encode in Markdown than the 1 week they gave it, and also verification becomes a bear as more ground-truth business logic is replaced with nondeterministic AI output. There's a thing happening here for sure, I just don't buy it's as decisive as they say.

3. Public data access: I 100% buy this. If this was a real moat, it's dead.

4. Talent scarcity: same deal. Remember, we're talking about vertical software, where the underlying technical work is fairly repetitive and best-practices driven; it's the exact slice of software development work LLMs excel at.

5. Bundling (you get IB messaging along with your charting and your news service); maybe. This point feels tautological. Work out what LLMs do to each of the bundled experiences and there's your answer for how resilient that moat is.

6. Proprietary data: I think they're just dead on right here, and it does indeed seem to be a good time to be a company like Bloomberg?

7. Regs lock-in: half credit, because AI does make regs compliance a lot easier, and I think we're at the very early stages of seeing how.

8. Network effects seems like a repetition of "bundling" and if I have a qualm about this rubric it's that they made it look like an even 10, so they could have clean wins and losses.

9. Transaction embedding (ie, being a payment processor or a loan originator) also seems tautological; it's a moat, sure, but they're begging the question of whether AI enables people to stand up viable competitors.

10. I think "system of record" and "transaction embedding" are kind of the same moat.

I wish people would not blog on X (I will call it X when it's used as a crappy blog platform); these ASCII charts are awful. But that's neither here nor &c.

Re: 10 years building vertical software: are we cooked?

#33

Post by bts89 »

bigiain wrote: post #12
zahlman wrote: post #9

> The S&P 500 Software & Services Index, 140 companies, fell 20% year to date. The overall index has been pretty well flat. What sectors gained? And surely there aren't 140 "software and services" companies in the top 500 by market cap?

Pretty sure there are 500 "software and services" companies in the The S&P 500 Software & Services Index.

500 is the target, not a hard requirement. The current SP500 index is comprised of 503 constituents.

I’m also pretty sure S&P doesn’t maintain a ‘S&P 500 Software & Services Index‘.

There is a ‘S&P Software & Services Select Industry Index’ with 140 constituents. That’s probably the index in question.

Re: 10 years building vertical software: are we cooked?

#34

Post by nradov »

JBAnderson5 wrote: post #13

> Now consider what the same analyst does with an LLM agent: "Show me all software companies with over $1B market cap, P/E under 30, and revenue growing over 20% year over year. Build a DCF model for the top 5. Run sensitivity analysis on discount rate and terminal growth." While I think LLMs can improve the interface and help users learn/generate domain specific languages, I don’t see how a professional can trust an…

Real financial analysts already have DCF spreadsheets where they can just plug in numbers for any company. An LLM can help with fine tuning or catching errors but it's not a game changer.

Re: 10 years building vertical software: are we cooked?

#35

Post by tootie »

hippo22 wrote: post #22

It’s worth asking: what do Wall Street traders know about building software companies? Almost nothing. Anyone who has attempted to start a startup knows that the software is always the easy part. Building the business is hard. The notion that we’re going to undo 100K+ years of specialization just so that companies can run mediocre, buggy versions of SaaS tools just to save a few bucks is crazy to me. SaaS stocks are…

Anecdotally, my partner does experience design for fintech systems akin to Bloomberg for a particular niche. They do the standard lifecycle of user research, design iteration in figma, handoffs to devs and all that. The tech department at this company has also been building OpenAI integrations for more than 2 years and are neck deep in LLM technology doing exactly what this thread describes. My partner is still doing exactly the same work she's been doing the entire time and getting the same level of adoption for all the bespoke UI development while the chat interface is just kinda there. I'm sure it's getting usage for some tasks, but it's supplemental.

Re: 10 years building vertical software: are we cooked?

#36

Post by add-sub-mul-div »

jayd16 wrote: post #21

Now that this guy is selling AI, surprise, surprise, its going to revolution everything else...But its misleadingly written as "we" are cooked. Its another ad, no?

Look at his submission history, nothing but self promotion. His entire presence here is just an ad.

Re: 10 years building vertical software: are we cooked?

#37

Post by nradov »

outside1234 wrote: post #24
hippo22 wrote: post #22

It’s worth asking: what do Wall Street traders know about building software companies? Almost nothing. Anyone who has attempted to start a startup knows that the software is always the easy part. Building the business is hard. The notion that we’re going to undo 100K+ years of specialization just so that companies can run mediocre, buggy versions of SaaS tools just to save a few bucks is crazy to me. SaaS stocks are…

Also, has nobody thought about operations? I pay SaaS companies so I don't need to think about operations. It is insane to me to think that people think a restaurant company is going to suddenly want to get into managing the operations of its vibe coded accounting app. Absolutely not.

There's enough unhappiness with commercial SaaS EHRs that I expect as few health system CIOs will decide to operate their own vibe coded replacements. This won't work out well for most of them but I think it's going to happen.

Re: 10 years building vertical software: are we cooked?

#38

Post by tptacek »

JBAnderson5 wrote: post #13

> Now consider what the same analyst does with an LLM agent: "Show me all software companies with over $1B market cap, P/E under 30, and revenue growing over 20% year over year. Build a DCF model for the top 5. Run sensitivity analysis on discount rate and terminal growth." While I think LLMs can improve the interface and help users learn/generate domain specific languages, I don’t see how a professional can trust an…

I think there's a lot of overstatement about LLM capabilities throughout this piece, but I think it's generally directionally correct. There's an attitude of "LLMs are just going to directly perform business logic" or "data extraction and ingestion" or "calculations". The reality is that deterministic human-mediated code is going to do all that stuff (and AI is going to drastically amplify human leverage in building that code), and LLM agents will call into it as tools.

It's like the people who talk about how LLMs can't count the r's in "raspberry" and don't seem to understand that GPT5 can reliably e.g. work out a transformed probability distribution function from a given PDF by integration and derivation --- in part because frontier models are smarter but more importantly because they're all presumably just calling into CAS tooling.

Re: 10 years building vertical software: are we cooked?

#39

Post by noosphr »

kristjank wrote: post #28

My experience is that in most of small companies, the revenue extraction cycle from big SaaS suites has gone far enough that people are moving to self-hosted (or rather colocated with a local-ish provider that installs and provides unofficial support) software, like they used to do before the great plague. Considering how Zipf's law works, there might be a huge discrepancy coming on as we see the products deteriorati…

I build a website generator from Word files in a folder for a coop I'm in. Four years back I had to move it to using libre office because Word broke how links in files work. As of last year the whole coop is using libre office because it works better than ms office which has corrupted old important files multiple times. I don't see a reason why they can't move to an xfce Debian. Having a consultant come in once every 5 years to update everyones computers is a lot cheaper than all the ms licenes you have to pay for now and easier to use without constant breaking changes.
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