The Changing Fundamentals of our Global Economy brought about by the Great Commoditization

Over the weekend, I published an essay attempting to summarize the global changes we are seeing brought about by the Great Commoditization of AI. I touched on history, philosophy, society, and so much more. Full essay here.

I wanted to share a short excerpt about the changes I am observing in the business world here on linkedin.

Changing Business Fundamentals

Cliffs Notes - AI tools, AI Employees & Aigents, and AI Generated Computer Code will change the fundamentals of every business and industry. (And no, I really don’t think this is hyperbole.)

One thing all investors, and especially venture investors, are taught to look for are effective business moats. In the pre-Internet age, these moats were mostly focused on advantageous access to supply, manufacturing, and distribution. Over the past 20 years, new moats have emerged as the most sought-after by VCs. Many of these moats revolved around a company’s ability to deploy differentiated high-quality code, and thus, such things as the size and quality of a company’s engineering team and the technical caliber of its founders were often deterministic in investment decisions. Most important of all, the aggregation of consumer demand was by far the most powerful and desirable moat of the .com era; for more on this please read Aggregation Theory by Ben Thompson.

Currently, during the era of the Great Commoditization of AI. All of this is subject to rapid evolution.

On the B2C side, the type of consumer behavior that made Aggregators such as Expedia, Uber, Spotify, and others kings of the economy is subject to change; I will soon publish an essay on this topic alone. And on the B2B side, the massive advantage held by horizontal tech may be waning. Over the past 20 years, the most successful new B2B and Enterprise technology businesses and the most valuable Startups were horizontal tech providers charging SaaS fees; eg, Salesforce. These horizontal providers had at least 2 massive competitive advantages. Their first major advantage came from the fact that writing code, and especially high-quality code, was difficult and expensive. Thus, their ability to amortize the investment in technology across a much broader customer base gave them the ability to raise more money and with that money to hire more of the top engineers. Leading to better products that grew the market further in a virtuous cycle. This massive advantage was coupled with the fact that by having a broad horizontal customer base, they were able to collect broad horizontal data, which further improved their products performance.

All of this is changing. LLMs can now easily provide broad economic data and thus, the data breadth advantage of horizontal platforms decreases. Further, with AI Generated Code and AI Employees, the horizontal platform advantage in deploying highly differentiated code will soon vanish. Eliminating arguably the two most powerful tech moats of the past 30 years. Further changing the fundamentals of our economy.

Closely connected to these changes is the fact that the SaaS business model along with Line of Business Applications, are also on the chopping block. The ability to utilize no-code platforms enables any business to create their own CRM, Accounting System, and an endless number of other technologies and tools for nearly free in minutes, which will continuously erode the pricing power of SaaS providers. Why should you pay 6-figures each year for Salesforce when you can build it yourself and maintain it for the tiniest fraction of that cost. And thus, over time, more and more businesses will abandon their SaaS providers in favor of built-in-house solutions that are cheaper, faster to deploy, and can be much more easily customised for your specific business. And with that the Build v. Buy (or license) decision, that for the past 30 years leaned in the direction of Buy will now quickly tilt in the direction of Build.

And in the words of Microsoft CEO Satia Nadella, Line of Business Applications will all be replaced by AI Aigents who do all that work more efficiently and flexibly.

This is just the start. These massive changes in the fundamentals of our technology economy are just the beginning of the disruption of the Great Commoditization. As I remind audiences all the time, we are still in chapter one of this new historical epoch. And so far, it seems like the big winners will be the mega massive AI model providers and the endless number of small and medium businesses, whose disadvantages compared to larger businesses are melting away.

What I sometimes call the coming Golden Era of Small and Medium Businesses.