- SaaS Sunday
- The Impact of OpenAI's GPT-4 on the Future of Software Engineering
The Impact of OpenAI's GPT-4 on the Future of Software Engineering
Plus: The Financial Dominance of Apple, and the Rise of Automation
I hope you’ve had a great weekend SaaSers,
With all the activity in AI and the rising popularity of ChatGPT, you may have wondered about the extent to which the software industry will be affected. Today, we're covering exactly that.
🍿 Quick Snack
🛠️ OpenAI's GPT-4 could impact 80% of US workers' jobs, but is it the end for software engineers?
🍎 Apple's revenue from services alone is bigger than that of Nike and McDonald’s revenue combined, and the segment is twice as profitable as Apple's products division.
🤖 Despite layoffs in the tech industry, the SaaS market is still growing and companies are looking to implement robotic process automation to make staffing more productive and effective.
🍟 Extra Fries: OpenAI CEO did not take equity, rival Character AI raises $150 million, and Intel's Chief Architect leaves to found a generative AI gaming software startup
💸 +7 Funding Rounds
🍔 The Full Meal
GPT-4's Anticipated Impact on the Workforce and the Future of Software Development
OpenAI's GPT-4 could impact 80% of US workers' jobs, with 19% seeing at least half of their tasks affected, according to a paper by researchers from OpenAI and the University of Pennsylvania.
Occupations with the highest exposure include mathematicians, tax preparers, writers, web designers, accountants, journalists, and legal secretaries.
GPT's overall anticipated impact will be the strongest in the following industries: data processing services, information services, publishing industries, and insurance carriers
The industries that are anticipated to be the least affected are: food manufacturing, wood product manufacturing, and support activities for agriculture and forestry.
Of course, the study has is limitations, but the key takeaway is that GPT models will become more widespread. For example, startups are already using GPT-4 to reduce costs on human developers.
The Future of Software: Insights from The AI Maze
Prediction: The cost of producing software will decrease as AI improves, leading to a world of zero marginal cost software.
What does that mean? Software development will become more like writing, with a single developer being able to have a big impact.
Convenience and differentiation will be the main forces driving value creation for companies building software.
Convenience: In the world of AI, convenience will be a function of price and complexity. The greater the complexity of the software, the less convenient it will be to create using AI.
For example, buying a subscription to Spotify is more convenient than downloading and organizing music on your own.
Differentiation: Copycats will inevitably become more common. The more successful a software is, the more people will attempt to copy it. Companies will then have to rely on network effects (such as social networks and marketplaces), distribution , and switching costs (e.g. users becoming used to a particular workflow or ecosystem).
Trends that will be at play:
Consumers will benefit from highly customized software for their specific needs.
The B2B SaaS market will be pressured to lower maximum prices as companies can make software at zero cost.
AI-generated code will lead to end-user "programming" and internal tools teams in companies emerging as a powerful force in the software industry.
Companies will need to work hard to deliver value above end-user custom solutions.
Is It the End for Software Engineers? Andrew Rousseau does not think so.
He argues that, writing code is only a small part of a software engineer's job, and maintenance and defects constitute the largest portion of where time is spent.
There is no debate that AI tools will unlock efficiencies in software engineering. However, software engineers will still need to be vigilant in checking the accuracy of generated code to ensure there are no defects.
In other words, good software engineers will still be needed to ensure a balance between delivering features quickly and maintaining high-quality systems and software.
Codium AI has released a beta version of its generative AI-powered code-integrity solution called TestGPT, which offers autogenerated software test suite suggestions for developers to speed coding and bug scans. (Read More)
Nvidia has announced new tools to aid developers and organizations working on advanced natural language processing (NLP), including speech AI and large language model (LLM) development. (Read More)
The Financial Dominance of Apple's Services Segment
“Services” are now ~20% of Apple’s revenue. This segment encompasses the App Store, Cloud Services, Subscriptions, Apple Pay, Apple Care, and Advertising.
To put it in perspective, Apple’s revenue from services alone is bigger than that of Nike and McDonald’s revenue combined.
“Services”, as a whole, is also far more profitable to Apple.
In 2022, Gross Margin% for services was twice that of products (~72% vs 36%).
Interested in more insights like these? Visit our friends at Trendline 👇
The Impact of Layoffs on SaaS Procurement and Renewals
Despite the large number of layoffs in tech, the SaaS market is still growing steadily, with Gartner predicting software spending to increase by 11.3% this year.
Vendr analyzed more than $2.5 billion in SaaS spending and anticipates that SaaS spending will increase 18% this year.
Smaller, less mission-critical SaaS suppliers may face tougher negotiations and renewals, while prices for top sellers may increase due to inflation.
Despite a bright outlook for some, the SaaS industry still needs to reduce friction in the procurement process and move towards standardized, transparent pricing to continue its growth.
Will This Be the Rise of Automation?
The COVID-19 pandemic has accelerated the demand for automation in businesses. Robotic process automation (RPA) is a software category that is experiencing strong demand due to its ability to make staffing more productive and effective. Even in the cost-conscious business climate, companies are still keen to implement RPA, generating tailwinds for RPA providers. (Read More)
We all know that in today's cost-conscious business climate, companies are looking for ways to cut costs and make investments more effective on a per-dollar basis.
Reducing staff and making it more productive is one way to achieve this, and robotic process automation (RPA) may have an edge in this regard compared to other software categories.
Battery Ventures' report on software spend shows that automation, including RPA and no code, "has risen to the upper-middle of the pack in Q1 from lowest-ranked category on average in Q3 2022 survey."
The adoption of RPA is still in its early stages as companies are just beginning to explore the numerous use cases that exist across industries.
Additionally, with AI tools rapidly improving, there is ample opportunity for startups to make an impact in this segment.
🍟 Extra Fries
👀 What?! Sam Altman, the CEO and co-founder of OpenAI, did not take an equity stake in the company when it added the for-profit OpenAI LP entity in 2019. OpenAI is now looking to tender shares at a $29 billion valuation, more than double what it was worth in 2021. (Read More)
😂 I tried this already, and chatted with Elon Musk. OpenAI rival Character AI has raised $150 million in a funding round led by Andreessen Horowitz, valuing the company at $1 billion. The company offers AI chatbots that allow users to chat and role-play with anyone. (Read More)
🏃♂️ Expect more moves like this. Raja Koduri, Intel's current Chief Architect, is leaving the company to found a generative AI gaming software startup. Koduri had assumed the role of leader of Intel's AXG graphics unit last year but stepped back to be a Chief Architect after a restructuring. During his tenure at Intel, Koduri was responsible for the creation and launch of Intel's Arc graphics cards and Ponte Vecchio GPUs. (Read More)
✂️ The cuts continue. Twitch is set to lay off 400 employees as part of its parent company Amazon's plan to cut 9,000 jobs across multiple divisions. The move is an effort to improve Twitch's business outlook in the long term. The announcement comes after the company's CEO stepped down to spend time with his family. (Read More)
🖤 M&A Transactions
💸 Funding Rounds
Character AI | $150m: open-ended conversational applications that let users create characters and converse with them (link)
Joblogic | $73m: service management software for field service operatives (link)
Coactive AI | $14m Series A: analytics and insights from unstructured image and video data (link)
Piclo | $9.8m Series B: leading independent marketplace for flexibility services (link)
Mistifly | $8m Series B: operating system to start or grow airline retailing business (link)
MVision | $5.8m Post-Seed: AI-powered solution for radiotherapy treatment planning to treat cancer (link)
Mercator AI | $3.7m: real-time construction intelligence (link)
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