Transcription
If I had to guess about what has changed from 2021 to 2025, is that most companies have realized that buying yet another vertical software solution is not going to help their business; that it typically adds bloat, it adds cost, and it adds people.
And I think starting in 2023, what people started to guess is that at some point in the near future, you're going to have some AI way of rewriting all of this vertical software. And I think that's why it stopped growing. I don't think this SaaS market ever had the return on equity that it was supposed to. And I think so many companies have woken up from this hangover saying there's got to be a better way. It can't always be yet another tool, yet another program, yet another multi-year delay, yet another price escalator. And I think that the jig is totally up for software.
You're referring to the Salesforce and the SaaS category, Chimoth, and what you're doing at 8090 specifically.
Yeah. Well, it's it's not just us, but like if you look at anybody that's rebuilding software, it is so much easier to rebuild software from scratch today. Like my team of 30 people can transact hundreds of millions of dollars of work. Not because we are so prolifically amazing, but frankly because—well, I think the team is good, but honestly—because the underlying tool chain gives you a level of leverage. And so if you rebuild the software development life cycle using these tools, you can't help it but become much more efficient, and you can't help it but deliver custom solutions that are meaningfully cheaper. And I think Jason, if you look at the entirety of the software that runs the world, we're going to rebuild it soup to nuts, all of that. And the tool you're referring to, just for the audience, is the AI co-pilots that are making—that are contributing 30-40% to code bases at Microsoft and less—less specifically that because those are those are good for individual people, but the software development life cycle is more the horizontal end-to-end of making things. Got it. So what we do internally at 8090 is we have an entire process that starts from the PRD all the way out to the functioning code, and we use different techniques at each step, but what you get is a 50, 60, 70% increase at each step, which then compounds. And so you have the ability of a team that would otherwise be able to service tens of millions of dollars be a team that can service hundreds of millions, and then a team that would otherwise service hundreds can service billions.
Let me ask you guys your response to this theory. If there is going to be this kind of accelerated—call it custom software rebuild of business models—and you take the S&P 493, do you think that we enter an era where there is a similar dispersion as we're talking about seeing in the MAGA 7 with the S&P 493, where there are going to be probably the biggest money-making opportunities for investors that we've seen in decades between those that do adopt and do rebuild using AI and those that don't? For 100%, 100%. I had a call yesterday with one of the largest private equity funds in the world, hundreds of billions of dollars under management, and we're doing something with them at 8090 with one of their most important assets. And when you're an owner of a business and you can direct specific change and you can rip out hundreds of millions of dollars of software licenses and replace it with tens of millions of dollars of highly customized software, it's an enormous lift to OPEX and business model quality. So why doesn't it happen more? The reason it doesn't happen right now for this S&P 493 is that the IT organizations inside all companies essentially speak a different language than the CEO, the CFO, and the board. So if the CEO, CFO, and the board of directors of the S&P 493 speak English, the IT organization speaks Mandarin Chinese, and you get away with saying all kinds of—I'll give you an example. I went to a CIO conference; one person that I met, an $18 billion a year IT budget. What the—does that actually even mean to spend $18 billion a year on it? I'm not saying that this is a MAGA 7 company, guys. And when you take that example and you multiply it by 50 and 100 and 493 examples of people spending money, there's an entire cartel of influence that's been built in software that's going to get undone because you're not going to be able to justify it.
Free: Absolutely correct. And the response from the SaaS industry is changing from the per-seat model as the number of employees at these companies continues to get lowered. Obviously, Microsoft, a lot of layoffs. Andy Jassy talking about layoffs. They're moving from the per-seat model. They're not taking this—uh, laying down. Uh, they know that people are going to make custom software. So what they're doing is they're moving to a consumption model. So you're seeing people charge per call, per customer support call, etc. And well, it's—I'll tell you why it doesn't work. It's working in combination. Hold on, hold on, let me finish. The other thing they're doing is they're dramatically lowering the number of people and the developers they have on their team. And then a lot of what's happening in the background is the third piece they're doing is they're starting to uh, do rollups, and people are starting to talk about how can we take, you know, 20 of these SaaS companies, lower them just like you're doing to compete—your thought playbook.
Well, I just wanted to comment on this like consumption-based pricing. It doesn't work. And what I mean is you can have some adoption in the short term. The best example is Snowflake, but in the long term, it destroys your business. And the reason is because you don't know which data is valuable, and you're not going to put up with a variable business model that increases more and more cost because you need to trap everything. And so what happens is all of these other companies develop around you. People go back to Postgress, people go to Supabase; they find all of these ways of saying Snowflake makes no sense. And the reason is because in this world, nobody's going to pay consumption because you're like, how do you expect me to, you know, hold and store and pay for terabytes and terabytes potentially a day of data? It's not sustainable. We'll see if Intercom, Salesforce, HubSpot, and we see if all of those people start—Slack—start losing their customer base or if they lower their pricing to make it just too easy to keep those systems in.
Thomas, your thoughts?
Yeah, so two quick thoughts. Uh, number one, Chimoth, to put a kind of a mathematical frame on this, right? We know that Anthropic is kind of the level zero of code generation. They're they're doing incredibly well powering companies like Cursor, right? I think—and this is order of magnitude correct—that Anthropic in Q1 added 70% of the net new ARR in the SaaS industry, right, defined by public SaaS companies, right? So let's just think that the company in AI that is most powering the disruption of SaaS added 3/4 of the net new of the entire industry, right? So that's kind of point number one. I think, Freedberg, point number two, I think what we're seeing in the MAGA 7, right, where we're starting to have debates about who's well positioned and who isn't, who's going to win and who isn't, right, is actually—as it was in the past 5 years—going to be a broader lens into the S&P 493. I think inside of boardrooms, inside of every investment committee, you're going to see the exact same conversations that we've been having about the MAGA 7, right? Who who's well positioned? Who can win? What are the management teams—maybe like Zuck—that are being aggressive and bold and capturing the opportunity, and which are the ones that are not? So for me as a stock picker, right, I think over the next five years.