The Hollowing Out of the Software Middle

'Software companies taste like chicken,' says private-equity mogul. 'They’re selling different products, but 80% of what they do is pretty much the same'

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SHOW NOTES:

• VCs comment on how 80% of software is all the same (WSJ)
• 218 Booths at Kubecon Analyzed

THE MARKET USUALLY ONLY SUPPORTS THREE OPTIONS

• Walking around KubeCon,nearly every segment had 6-10 companies offering solutions
• Markets can’t sustain more 3 in any category (Market Leader, Market Follower, Cheaper Option)
• The Market can’t understand the differentiation of the 6-10 company market; 80% of the functionality is the same.
• We’re coming out of Unicornpalozza (2019-2022)

OPEN SOURCE AND SAAS HAVE HOLLOWED OUT THE MIDDLE OF SOFTWARE

• Open source typically highlights the creator, largest contributor to a project
• Beyond that, open source is “integration” companies, or “lifecycle” companies
• Large companies (or platforms) can buy up the “feature” companies to fill in their gaps
• Companies in the middle have to build sales and marketing around mostly undifferentiated messaging or products.
• SaaS allows companies to leverage product-led-growth, and micro-target to specific use-cases. 
• The successful middle (mid-sized, decent growth) will get picked off by PE
• The unsuccessful middle (great tech, bad execution) may get picked off by large vendors
• The unsuccessful middle (average tech, bad execution) will go under

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