Investor Mike Vernal said in a post on X that the software industry may replay the barbell effect seen in newspapers during the 1990s. He argued that once the internet drove distribution costs to zero, the New York Times grew from a 2002 print circulation of 1.113 million to about 13.4 million subscriptions, while papers such as the Los Angeles Times, Chicago Tribune, and Dallas Morning News fell by 73% to 91%, hollowing out the middle tier. In Vernal’s view, AI is now driving the costs of copying, migrating, and integrating software close to zero, weakening traditional moats and reducing the weight of switching costs and network effects. He said economies of scale and brand could matter more, with each enterprise buying center eventually centered on one AI-native system. He added that small and medium-sized businesses may prefer integrated systems, while mid-sized point solutions could be consolidated or disappear. Vernal’s advice to venture investors was to back software companies that go broad, while a long tail of smaller software products may also emerge, similar to the Shopify ecosystem in the D2C era.
ChainCatcher reported that investor Mike Vernal said in a post on X that the software industry may replay the barbell structure seen in newspapers in the 1990s.
Vernal wrote that after the internet pushed distribution costs to zero, New York Times subscriptions rose from a 2002 print circulation of 1.113 million to about 13.4 million, while the Los Angeles Times, Chicago Tribune, Dallas Morning News and others fell by 73% to 91%, leaving the middle tier to disappear.
He said AI is pushing the costs of software replication, migration, and integration close to zero. In his view, that is eroding traditional moats, while switching costs and network effects matter less. Economies of scale and brand, he said, are becoming more important.
Vernal also said each buying center in enterprise software will eventually have one AI-native system. Small and medium-sized businesses are likely to prefer integrated systems, while mid-sized point solutions may be consolidated or disappear.
His advice for venture capital was to back software companies that "go broad." He argued that the moat will come from the extreme replication cost of building large amounts of software every day and reinvesting continuously. He also said a large number of small software products could emerge, similar to the Shopify ecosystem during the D2C era.
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