Artificial Intelligence Surpassing Traditional Software in the Second Wave of Disruption
The software industry, a cornerstone of modern economies, is on the brink of a seismic shift. According to the economic theorist Joseph Schumpeter, creative destruction is the essential fact about capitalism. If he were to witness the rise of Artificial Intelligence (AI) today, he might question whether capitalism, as we know it, can survive its own essential fact turned against itself.
In the next 20 months, AI is expected to 'eat software', as traditional software companies, particularly those in the Software as a Service (SaaS) sector, face a wave of disruption. Major players like Microsoft, IBM, Cisco, SAP, Salesforce, and Accenture are integrating AI to automate tasks such as content creation, coding, and customer engagement. This shift could see the software sector's contribution to the economy decrease from 10% to a mere 2%.
However, this isn't just transformation; it's termination. The massive economic restructuring required is already evident, with the GDP composition changing as AI services increase. The exact displaced activities are yet to be fully understood, but the implications are clear: jobs will be lost, and new ones will need to be created.
For society, this change necessitates a swift acknowledgement of the speed at which this transformation is happening, the safety nets that need to be put in place, a revolution in education to prepare our workforce for the AI-driven economy, a rethinking of our economic models, and a political response to manage this transition effectively.
The AI landscape is dominated by a few key players, with OpenAI, for instance, boasting a $90 billion valuation and less than 1000 employees. The same features that made software successful - scalability, network effects, and zero marginal cost - make it vulnerable to instant AI replacement.
While some fear a complete destruction of the software industry, leading to mass unemployment, economic collapse, and social revolution, others envision a hybrid equilibrium. In this scenario, some software survives, with AI augmenting rather than replacing human-driven functions, leading to the emergence of new job categories. This transition, while painful, could be manageable.
On the other hand, there's the possibility of an AI winter, where limitations are discovered, adoption slows, and the software industry rebounds, leading to employment stabilising and traditional patterns resuming.
For workers, the message is clear: assume displacement, move fast, go adjacent, build relationships, and create options. For software companies, it's time to accept reality, maximise value, find niches, sell early, and retool completely.
This isn't disruption; it's displacement. The software industry as we know it is ending, and what replaces it will employ a fraction of the people with a concentration of power that would make the robber barons blush. The creative part of 'creative destruction' is notably absent, making this transformation a category 5 hurricane making landfall on the entire software industry.
