Hongbeom Park

The Commoditization of Software

HongbeomJan 7, 2024·Last Updated On Jan 12, 2024Thoughts
3 min read|

There are three topics everyone in tech is talking about

  1. The End of Zero-Interest Era
  1. Productivity Gains from LLMs
  1. The Rise of Smaller, Agile Companies

I believe these trends are accelerating the commoditization of software.

  1. Due to LLMs and no code tools, more people are entering the SaaS arena, leading to an increase in supply of software.
  1. And many companies are cutting costs. So, there is also an increase in demand for cheaper software.

So this sounds like a race to the bottom, and a terrible time to do software. But, it depends.
With more competition and shrinking margins, building a unicorn company will be harder. But if you want to achieve financial freedom, say a monthly revenue in the five to six figures, it has become easier.

Two reasons:

  1. With budgets tightening, customers are more open to switching to less bloated, cheaper software. This trend favors small, agile companies that can offer better pricing.
  1. Now, a small team of just two engineers can accomplish significantly more than they could have 3-5 years ago. There is no need for external funding to start software business.

There are teams that are seizing opportunities by quickly adapting to these market changes with better pricing strategies.

  • Pay-as-you-go: TypingMind offers ChatGPT like app with a pay-per-use model. In contrast to ChatGPT's monthly subscription, this model caters to users who don’t need constant access to GPT-4 and can't justify a $20 monthly fee. And the pricing strategy has worked. TypingMind is now earning $33k a month.
  • One-Time Payment: 37Signals was the early pioneer of the SaaS revolution. They are now launching once.com: products you can buy with one-time payment. Everyone is growing tired of multiple subscriptions. I think one-time payment model seems like a great psychological hack to get users to pay.
  • Bundled Services: Another emerging trend is the bundling of hundreds of utility apps into a single subscription, similar to what Setapp offers.

On top of better pricing, I believe design and branding will become more important. In saturated markets, like those of restaurants and fashion, the processes for creating goods have become standardized. Instead, they create unique value prop through design and storytelling. Think Patagonia!
I think a similar thing is happening in software. There are now million courses on how to start SaaS. And SaaS templates like
shipfa.st are becoming popular. In short, building a software has become easy.
Superhuman is a great example of well branded software. They entered the email app market when it was already full of competitors. But they still built a successful business by making a brand that people love. I think we'll see more
premium software like Superhuman in the future. If you want to understand how Superhuman's branding made them successful, you should read Kwok's detailed analysis.

Assess your resources, see what's missing in the market, and quickly create products that are affordable for customers. Or, go for a luxury approach like Superhuman.

Subscribe to Hongbeom

Follow Hongbeom's journey to building $10M ARR SaaS business