"Decoding the Software Landscape:" Ways AI Disrupts Digital Companies

SPEAKER_1 (0:00)

For more on the software space, let's welcome in Ben Topor, the founder and managing partner at Titan Capital Partners. Ben, great to have you on today. Now, I know you recently just published Decoding the Software Landscape. So as you look at trying to decode everything we've been dealing with in the software space this year, the Sassacre, the Sasspocalypse, when you look at the market now, how has it changed since when you were thinking about writing the book and then during the process of writing it?

Ben Topor (0:29)

Of course. When, thank you for having me, Marli.

When I wrote the book, I initially started by recognizing there are eight different value propositions of software.

They vary from revenue generating companies, cost-cutting companies, companies that reduce risks, shortening time to value, and also keep the light to the infrastructure companies. But AI has actually changed the landscape. Today, there are collisions within different categories. Today, you see categories reshape. But the interesting fact that the fundamental value propositions of companies have not changed. So what is really changing is the infrastructure above them. So if until today's software companies were really building a dashboard that can show the employees how they can work, what they need to do. So increasingly, we see AI companies doing the work for you. So companies today are actually changing the unit value for the customer. If in the past, it was seed-based annual agreement, today it's jobs to be done. Like what we can accomplish for the employees. So the entire software industry is now being disrupted. And we see areas that have more durable value than others.

SPEAKER_1 (2:00)

And so as we're looking at the disruption and where the value lies, where are you seeing the greatest potential for new entrants to disrupt some of these more established software companies?

Ben Topor (2:14)

Yeah. Well, I think the book, The Innovators' Dilemma of Christian Christensen is very much relevant for today's world. Like for big software companies, it's actually very hard to adjust themselves to the new reality, because they actually have big customers to serve. And they don't want to cannibalize their revenues. So they need to find a way to put forth an AI offering, which may risk their main core business. So it's definitely easier for technology startups, where they need to build from scratch, unrestrained, un-conflicted to build a product that is really bringing A to Z. So it's really completing the work for the employee, for the company.

It's just much easier. They have better talents and they are un-conflicted.

SPEAKER_1 (3:19)

And so Ben, as you're looking at these software companies, what is separating a software company from one that is genuinely being rebuilt around AI to one that is simply adding AI features to an already existing product? And who emerges as the more successful company in those two buckets?

Ben Topor (3:41)

Yeah, well, the key thing is, again, the unit of value. So, if a regular software company is providing the service, the workflows, increasingly, those AI next-generation companies are actually doing the actual work autonomously.

So, that's really the real difference today. And I think it's very hard for investors to distinguish because everybody is saying AI. AI is in every presentation, in every title, in any company's logo.

So, the question is, how much of the revenues of a specific company is really coming from those unique workflows, autonomous decision-making, they've, the clients are putting their trust and sometimes actually decision rights or actually also the ability to move capital or make decisions on the behalf of the organization. So, how much of the revenues are actually deriving from those AI first new generation offerings vis-a-vis the legacy business? So increasingly, you see companies are managing to reinvent themselves and have more revenues from AI offering versus their legacy business, but it's not easy. But as markets mature, it's also important to understand so a company can have lower AI revenues, like say 10 or 20 percent, but overall, that could be one of the leaders in the market today. So there's a balance, like from the actual percentage of revenues generating by AI for a software company vis-a-vis the market position, market strength, market power, and an investor should really look at both of them at the same points.

SPEAKER_1 (5:39)

And Benny, you have a particularly strong view on vertical software. You think it's underappreciated. Why do you think that industry-specific software remains less discussed than some of these broader more horizontal platforms?

Ben Topor (5:56)

Yes, well, historically, I think vertical software was a bit underappreciated because most of the bigger markets, the bigger times were horizontal. So much bigger market, like markets like marketing software, advertising software, HR software, et cetera, are much bigger because every business needs them.