Software Companies Will Be the Long-Term Winners of the AI Revolution
The AI revolution is upon us, and while hardware companies like Nvidia are currently basking in the spotlight, history suggests that the real long-term winners will be software companies. Just as the PC and Internet revolutions ultimately rewarded those who innovated in software, the AI era will be defined by companies that create transformative applications and sustainable business models.
These winners may include the "usual suspects" like Amazon, Google, and Microsoft—companies that already dominate in AI infrastructure—but history also tells us to expect surprises. During the PC and internet revolutions, some of the most impactful software companies were born from garages and dorm rooms, driven by a deep understanding of user needs. The same could happen in the AI age, where user-centric software companies we haven't even heard of yet may rise to define the industry.
This post will explore how user experience, design, and product thinking—not hardware—will determine which companies emerge as lasting leaders in the AI age.
The PC Revolution: Microsoft & Intel
In the early days of the personal computer, Intel and Microsoft were both pivotal. Intel provided the hardware—microprocessors that powered PCs—while Microsoft developed the software—operating systems like MS-DOS and Windows and application software like Office. Initially, Intel's hardware was crucial, but over time, it became a commodity. Competing chip manufacturers emerged, the focus shifted to price and performance, and Intel’s margins got squeezed.
Microsoft, on the other hand, created a software ecosystem that became indispensable. Windows became the standard operating system for PCs, and its dominance allowed Microsoft to build a suite of software products like Office that locked users into its ecosystem and became the standard for how business gets done in most industries. Ultimately, the differentiating innovation came from software, not hardware. Microsoft’s ability to innovate in software led to sustained profits and market dominance..
The Internet Revolution: FAANG & Cisco
Fast forward to the internet revolution. This time around, Cisco was the hardware giant, providing the routers and switches that formed the backbone of the internet. However, as the internet matured, the real value shifted to the software layer. Companies like Facebook, Amazon, Apple, Netflix, and Google (FAANG) leveraged the internet to create platforms and services that transformed industries and commanded a price premium.
Cisco's hardware, while essential, became a commodity. The real innovation and profits came from software companies that built scalable, user-centric platforms. These companies created ecosystems that were hard to replicate, driving user engagement and generating massive revenues. The differentiating factor was again software.
The AI Revolution: Software Will Outperform Again
Today, Nvidia is at the forefront of the AI hardware market, providing GPUs that are essential for training AI models. However, as with previous technological revolutions, hardware will eventually become a commodity. Competing hardware solutions will emerge, driving down prices and margins.
Meanwhile, various players in the AI industry are struggling to find sustainable business models and applications that users are willing to pay for. This struggle highlights an age-old truth: the ultimate success of AI hinges on user experience, design, and product thinking—in other words, software innovation.
The Struggle for AI’s Killer App
Creating AI applications that truly resonate with users requires more than technical prowess; it demands a deep understanding of how people interact with technology and what they’re willing to pay for. Software companies that excel at this will build AI-driven platforms and ecosystems that deliver unique value propositions. These could range from AI tools that automate mundane tasks to applications that provide deeply personalized experiences, all while addressing real-world pain points.
As with previous revolutions, software companies have the flexibility to adapt and innovate continuously. They can iterate on user-friendly interfaces, refine proprietary algorithms, and integrate seamlessly with other technologies. This ability to focus on user-centric design and problem-solving will drive the creation of business models that capture long-term value.
Hardware Is Commodity, Software Is Golden
While hardware companies like Nvidia are crucial in the early stages of the AI revolution, history shows that the real long-term winners will be software companies. Just as Microsoft and the FAANG companies leveraged software to create lasting value, today’s AI software companies will drive the next wave of innovation and profitability.
Hardware will become a commodity, but software will remain the key to unlocking the full potential of AI.
Call to Action: Focus on Software’s Role in Business Models
To my fellow software innovators, this is our moment! The future of AI will be shaped not just by technological breakthroughs but by how we translate those breakthroughs into applications that people love and — crucially — are willing to pay for. This requires not just coding skills but product thinking, user empathy, and business savvy.
Let’s focus on creating the kinds of user experiences and ecosystems that drive sustainable business models. The hardware may enable the revolution, but it’s our software that will define its impact. Join me in building the future, one user-centered innovation at a time.
