The RFP Is Dead. How Does AI Change the Way You Buy Software?

Margaret Kelsey (00:47)

Welcome back, Tony. It's great to get back behind the mic. I know something that we've recently talked about is, kind of, this shift that we're seeing with purchasing software, and even where the software industry is going.

Obviously there's a lot of chaos going on right now, let's say. So to open it up, I think I would love to hear your perspective on what you see just overall generally happening in software right now. We'll do a large view of it, and then let's drill down into maybe what's changing about buying software.

Tony (01:27)

Yeah, that's hard to unpack in a short overview.

Margaret Kelsey (01:30)

You get 30 seconds, go.

Tony (01:34)

In the software industry right now, we're seeing obviously a big disruption with AI from coding, AI coding to AI learning, all of these different issues.

And, you know, as I mentioned at our user conference we had last month,the number one industry that's going to be disrupted by AI, ironically, is IT. It's not going to be the warehouse person.

Margaret Kelsey (02:00)

Or the picker.

Tony (02:03)

And then probably wide collar jobs after that that are doing data entry or moving stuff or doing analysis. So IT is going to destroy its own industry basically, in a way.

But in order to get effective AI, AI needs data. AI is so good at writing code now, and we're doing it with our engineers and getting better. We're working on perfecting it to, actually, using our audited platform.

AI is really good at writing UX code. And so given the right tooling, the right APIs, it literally can write an entire UX screen in minutes–that used to take an engineer months–with the proper instructions.

And so in the next year, or towards the end of the year, I see that a lot of the point solutions or SaaS companies using third party APIs and things like that will really be struggling and/or disappear. The platform, cybersecurity, scalability, DevOps, all those things are still very critical. Not something AI is going to replace anytime soon. Although we certainly use AI to assist there, there's still a lot of human involvement.

So it'll be interesting. Engineers are also getting much more efficient. We're obviously AI-first internally, working through that. But the control of the desktop, the control of the user experience, defining yourself by user experience is going to disappear. Everybody's used to talking, typing to AI, AI doing things for them. So it will be a revolution over the next three or four years. That's going to move extremely fast.

So overall, I would say that there's massive amounts of uncertainty in the software industry for engineers, for employees. It's funny, there used to be this thing called generalists in the software industry many, many years ago, who came in the software industry. Where you knew a lot and you developed in a lot of different areas and that disappeared as tooling got more specialized. Now what we're seeing is the solution engineers that are really good are the generalists, because AI can do the specialization. It's the generalists who understand the big flow and everything happening that can actually tell AI exactly what it needs to know to actually go do the work. So, I think that was under 30 seconds.

Margaret Kelsey (04:29)

You blew past 30 seconds on that one, but we'll give it to you. I know we've talked privately or like one-on-one about what we've seen over even the last five, 10 years of software and features becoming a commodity. I think we might've mentioned it at some point on one of these podcast episodes, but it sounds like that is becoming even more real as we can use AI to create new features and products at a faster scale.

So I know that there's a lot of people out there and the historical way of buying software was you submit an RFP, right? Or you send out an RFP and then you get a bunch of responses back of “can you do this certain thing” or “do you have this feature?” What do you think is changing about the buying process of software based on the fact that not only a couple years ago, software was already becoming a commodity, but now it's speeding up in terms of the software you can actually create?

Tony (05:35)

Yeah, I think there's a two-edged sword here. You can create software very fast, but you still have the human change management if you're creating screens people have to use.

Margaret Kelsey (05:40)

Oh, that tricky thing.

Tony (05:45)

You also can create technical debt that doesn't scale. So if you go back to creating all one-offs for your company, that doesn't scale either. But when you look at a partner who you're buying software from, one, we're seeing a migration to consolidated platforms. Service Now’s revenue is going up like crazy because people are migrating their data into one spot to improve AI, improve training, all of those things. And you're going to want a partner that's innovating. I mean, we're seeing that in our own business, people consolidating, people want to see innovation, because you're really buying the future like we've covered before. In the world of AI, it's going to become even more critical to have one platform, one place for your software to live. I think when we think down to feature sets, distinct features that you win on based on some specialized knowledge is going to be no longer.

I think that when you look at a recent example of writing cartonization to put things in boxes that check out in real time, there's some specialized formulas, they take knowledge, there's a few companies who did it, maybe did it well, mostly shipping companies. They had a lot of specialized knowledge. We had AI write a prototype in, literally less than 30 minutes because the algorithms are out there on the internet. And if you have the rest of the infrastructure around it, like the commerce, the checkout, the shipping rates, where to store the data, all of those things, those very specialized features become very easy to plug in and produce and plug those in.

So I think you have to look at it, when you're buying, as a whole: what are the capabilities? If there's a few missing, we just tell customers, we can certainly develop those with you. But that gets even faster now, right? Specialized things that people want.

So it's not even about – the tech industry is talking about, you can recreate whole SaaS products lightning fast. When you think about an RFP process, okay, you should understand the basics that the company can do most of it. They have customers like you, they fit markets like you, they understand your business. They're also innovating as a partner, they're rolling out new things all the time.

But when you get down to evaluating the RFP, if one vendor has 50% of it and one has 70%, or one has 90 and one has 80, that gap is so small now in the world of AI, of new things to plug into the same type of solution.

And then, lots of times people are looking at point solutions. What other value are you going to get from the products around it? How does it interconnect? Because having five or eight, nine, 10 point solutions – some people have 20 – and taking advantage of all the innovation capabilities. All those companies are moving at different speeds, they're innovating at different speeds, their data is all side-loaded in their own.

And yes, AI can contact APIs and get data out, but it's still not going to be as good as it's…calling those systems to get data out or do things. Of course you have the people change and things like that, but if you look out what's my three to five year plan, it's not about this one solution anymore, it's about how the future's gonna be, because AI literally is reinventing itself or leapfrogging itself every seven months in capabilities. We're not talking years, we're talking months now, in that there's new capabilities.

Margaret Kelsey (09:45)

The other thing that comes to mind is not just obviously the data quality and passing it through that many systems, but also there's a piece of security as well, right? How many different companies have access to your data and are you flowing through to all of these different companies?

Tony (10:06)

And how many companies are using your data for their own AI? Which Kodaris doesn't do – it’s siloed on AWS – and that's one reason we use AWS solutions.

Margaret Kelsey (10:11)

Then you have to audit the compliance for all of those vendors and make sure that they're keeping on top of all of their certifications and whatnot, right?

Tony (10:30)

Yeah, and also what they're doing with your data, and with the personal information management and everything else going on. So yeah, the software industry is interesting. Whether, how many things that the AI companies like Anthropic and people will knock off and just destroy industries. Versus the more specialized solutions, versus the conglomerates that are building – you know, I saw Oracle or ServiceNow as like pounding on Salesforce's door and converting people off their own CRM. Because no more is there a unique specialty about even CRM at that art of scale either.

Margaret Kelsey (11:14)

What's your craziest take about what's going to happen in the next one to three years? I'm specific about technology, but it could be the craziest take about anything. What's your tin foil hat theory, Tony?

Tony (11:30)

You know, I think it's interesting times with not only this revolution underway in the IT industry, both macroeconomics, the US not having a recession for a long time, we're way overdue. There are a lot of markets tightening right now, so there's a lot of people getting laid off, especially in the IT industry.

It's going to take time. I'm not a doomsday – I think, just like with every innovation, there will be new jobs created. There will be places…that it will take time. There will be some pain. So I don't know. I think that the people who excel in the IT industry will become a highly specialized industry again for those who really understand and know how to use AI. And those are the skill sets.

It's interesting, either you have a knack for it because you almost are managing employees or you don't. At least that's early what we're seeing in the IT industry. So the folks who got into IT got paid a lot of money because there's massive demand, which was only – if I look back three, four years, it was very hard to hire engineers globally because the whole global market was so tight.

And that became a little bit looser the last year or two, but now it's becoming really loose in the US and really, I think, all over the world. But now it's like, who do you hire? You're looking for specific people that can be AI first and really leverage it because they're just faster at everything, because they have people helping them. They have Claude helping them, right?

So I don't know, I think the IT industry will shrink from a people perspective, from a headcount perspective, quite a bit. I think the consolidation will…under recession, we'll see macroeconomic consolidation of IT services. We see companies tighten and say, what can we eliminate? And if I can eliminate a few solutions and consolidate that onto one, I'm going to be money ahead.

And so I think there'll be a trend towards where the industry will just kind of change over. It's been very, I don’t want to say stagnant, but pretty much the same for about 20 years, 15 years, as far as how IT works. Which has become the backbone of massive amounts of revenue, investor money, those types of things. So I do think that the AI companies will knock off more more industries because they just can't help themselves. There's too much opportunity. There's too much investment going into it.

Margaret Kelsey (14:14)

Yeah. Yeah, it feels like the train is full steam ahead. The brakes won't work at this point. There are no brakes.

Tony (14:23)

Well, when you analyze the CapX going into AI companies and what people are investing in, it's like nothing we've ever seen. But I do think there will be some winners and there'll be a lot of losers. So hopefully if you're building your infrastructure, you're betting on the winner, not one of the losers.

Margaret Kelsey (14:42)

Yeah, well, that helps me transition actually to – not to toot our own horns – but I know another thing that we've been talking about recently is this idea of a multi-billion dollar experience for, for customers. And so you shot me an email with, I think it literally just said ‘multi-billion dollar experience, not hacky features.’ Let's talk about that.

Tony (15:13)

Yeah, I think my thought there was, as we talked to people, especially small companies who are switching to Kodaris, there's a mindset of “we're small so we can only do X.” Or can we just make this work? We're not trying to be fancy.

Can we afford this? We've had several people look at our solutions and say, “I'm not sure I can afford this”. Before we even priced them, because it looks like a lot. It looks like it's high end.

Margaret Kelsey (15:43)

It’s not what they're used to.

Tony (15:45)

The cool thing is, in the world of AI – well first with the Kodaris community, we've built this billion dollar experience already for other customers. And by being part of the community, you can have that. It's different when you're looking at a low end commerce system or a customer portal and saying, “well this is what it is, but this what we can afford” to “I'm SMB or mid-market company, but now from a technology perspective, I can compete with a multi-billion dollar company.”

But we have customers doing that, and we have customers who have signed and that's their plan, and we're delivering on that. So you have to dream the future, just being part of Kodaris. Because sometimes we just have it, because we've already done it with someone and you own it, you just don't know you own it.

The other thing is you know, around that, is with the world of AI. And we talked about it when I presented at the user conference, that the IT industry is going to get really flat because you can produce code so fast. And once that code is produced, you know, it runs. So you're going to kind of have this market segment where – I don’t want to say it's a race to the bottom, but the AI companies are selling, for a 70% value, let's say, that employee to write code, or a 700% value, it can write it for 10 employees, because you have somebody good who can use AI.

So the productivity goes way up, which means the supply is going up. So the cost should come down from an economic perspective. So the idea that SaaS companies are going to charge a lot of money for monthly or users or anything else is going to be really challenged in the next few years. Because if you think about a billion dollar experience, and AI can write that at one one thousandth of the cost or you need a feature and you're already starting with a big foundation like Kodaris is, then having AI tweak and build on top of that becomes very fast. And we're working on where we're going to give customers the ability to even do it very fast themselves.

Because the future is not in that service business, the future is not in the per seat – which we charge flat rate for ours, so you get unlimited users, everything, unlimited features as we roll them out. I just see that whole dynamic starting to really change. But then that means if you've been a smaller company, you have to really pull yourself out of the fact and say, it's not about just what we think we can afford, and so let's just do something. Let's dream the future and then say, okay, can this be here today? It is within our reach based on being on Kodaris and AI and everything else we're doing?

And you know, we have customers all the time come and say, “well, we're looking at this solution. Do you guys already have that?” Or “what's on your roadmap? Are you guys developing it?” We have one customer who had a very old website user experience and they have some huge competitors, multi-billion dollar, and I said, I told them, and this was a year ago that we would put them on a level playing field. They launched a few months ago and the response and their growth online – users and interactions and everything – has been hundreds and hundreds of percent increasing. And it's just that, and it's just turnkey. We didn't do anything special for them yet, but it's just that they got an instant upgrade. So they're one decision away from…they made one decision to join Kodaris and it changed their whole competitive model around technology with their largest competitors.

And I think that's going to accelerate, not only for Kodaris’s people, but even across industries.

And the large companies traditionally have their advantage has been money when it comes to technology. But I think that's going to disappear because the technology is going to be so plentiful that people like Kodaris or software companies are going to have…well we're using AI, we create the software, we're going to resell it a million times. So going to keep dropping the price till we get business.

And you're going to kind of see this commoditization of software in general. That's not going to be the advantage anymore, or not near as much as the advantage.

Margaret Kelsey (20:29)

Yeah, and I know I always go back to it's the fact that this business model that you created around the Kodaris customer community funds the innovation, which now, thankfully, is going to be less expensive than ever before in terms of engineering services and then the entire community benefits. I think there's a lot of software companies, point solutions out there where their business model is not that, right? Their business model is pay per seat, price increases every year – even though that software has already been built. Slow development cycles, maybe you're getting one or two releases per year in terms of new features. And I do think that – this might be a little too like chest beating – but I do think that the uniqueness is in the business model, to be able to constantly make sure that we're lowering prices for customers as the cost to us is lowered as well.

Tony (21:21)

Yeah, I, you know, again, I tell people I came up with this by accident. I kind of fell into it just the way we got started of funding our business.

Margaret Kelsey (21:30)

And that's not, you're not giving yourself enough credit. It's based on your values as a human being of why you “accidentally” fell into it.

Tony (21:37)

But anyway, I do think the model of feeding features…you know, we talk about price or cost. There's the initial purchase price like we talked about. And that's what most companies look at. But then it's, well, what features or upgrades are you getting? How's that software providing more value? And I think as we look at Kodaris, if you subscribed to our service, you know, three years ago, you're still paying the same price. But we've probably added 30,000 features or enhancements into the platform. So your value is continuously going up every week, even though maybe our price isn't dropping, but the value is still going up. And we continue to do that. As we add new features, we looked the other day and we're working on a little bit of a pivot internally to product teams. You know, we have over 60 products and going. And I think, literally, we added three new applications in the last month. So it's accelerating, but that value just keeps coming. So as people pay their services bill, even if they have the same budgets and we can move faster and provide more value to the community.

Your cost does go down. Your return on investment, besides eliminating other providers or increased revenue from a billion dollar experience or operating optimizations you're making using Kodaris, that value just keeps giving back. And we've been fortunate. We haven't really had to raise prices in many years on SaaS. Obviously, labor's gone up a little bit, but not with AI.

We're AI-first, we're going to get more efficient. So how you calculate that, what you're paying, you have to, the ongoing constant of innovation is a big factor, a big cost that people sometimes don't really think about.

Margaret Kelsey (23:41)

Yeah, and you think about, I know earlier you mentioned change management, right? And I know there's a lot of our customers that might sign on and become part of the customer community. And maybe they're only implementing one piece of the platform, but then they have a roadmap of three months to six months to a year to then implement something else. And then they can then get off whatever point solution product they were using for that too, right? And so you think about the cost savings even in that calculation of being able to, eventually, even if it's not on day one of signing the contract, being able to look out on what other things you're getting with Kodaris and when you're going to be able to save money by not renewing the other contract.

Tony (24:29)

Yeah, we see that quite a bit. We have people who have been three or four year roadmaps that have budget. They're going to invest and they have the savings calculated out as they migrate solutions. But they also see the new features and they see the upgrades. So they're looking for that. You know, one of the other things I see is with the integrated platform, you know, if you're, you know, we offer the payment processing with terminals and everything integrated to ERPs now.

If you're entering data in the ERP, but then your customer goes online and they vaulted something or they vaulted a card online, it now appears in the ERP when you're taking an order by phone. You know, so you think about someone like Delta Airlines, who I'm in Atlanta, so I fly Delta. I can call up, I can use my card on file, whether I'm on the phone, whether I'm on the website, whether I'm in the mobile app.

That seamless experience of everywhere, you can have that on Kodaris. It's not a disjointed, “oh, and you did that on a commerce site? Well, this is a different system by phone.” When we think about that billion dollar experience, those are the things that a customer's coming to expect. Not just, “oh, I can't do that in the app. Oh, I can't do that by phone. Oh, online I can only do this.” And I think about it, it took Delta quite a few years to get all features in the mobile app. But they finally did it, using your e-credits now and other things. So it's definitely a journey, but it does make life a lot easier for your customers buying from you who want to do business with you, but they do want it to be easy.

Margaret Kelsey (26:12)

Yeah, side note on that little off topic, but similar, it's the Delta thing. I was hearing that the younger generations will actually do large purchases on their phone. And I was trying to think about why, like for me, there are some things like a plane flight is a computer purchase, right? It is not a phone purchase. And I was like, I think because like when I was in college and starting to buy my own stuff, you didn't have phone apps to do those things. You had to go on the computer for big purchases. Anyways, side note, but I thought that was really hysterical to think about even, we're thinking about current customers’ expectations of buying experience, and then you think even in 10 years the Gen Zers that are making these purchasing decisions are going to be that much more making big decisions on their phones. And that to me is terrifying, but yeah I'll try to…I'm still getting over like the tap to pay versus insert, and all that kind of stuff. I never know where to tap it. I'm feeling like I'm getting older and older every day.

Tony (27:23)

In 10 years you'll just tell your assistant, your AI assistant to book a flight please and here's when I want to leave and here's where I want to go. I mean there's probably people piloting out there now with guardrails, but in 10 years we’ll have that figured out. So you won't do it on your phone or your website, you'll probably speak it into something at some point.

Margaret Kelsey (27:32)

Yeah, yeah, that's true. That's very true. Just voice–to-text on everything. Voice-to-AI.

Tony I think that's really all very helpful to think about. In the way that, if software is changing rapidly at this point in time, we also have to consider the process and maybe the traditions of how we've purchased software in the past and what bits of those should remain versus what we should be looking for as we move forward. So thank you for giving us some hot takes today.

Tony (28:21)

Yeah, once everybody has it all figured out, I'd like to know because I certainly don't. But certainly the world is changing so fast. I think the one thing that won't go away with AI is the human to human component. You need to evaluate all these things, but you also want to know the people on the other side of that transaction and that you're betting your future on – because you are kind of betting your future. So despite what everybody says, AI is going to save us a lot of work, be very cool, help us be way more productive. But I in no way think it's going to eliminate any human to human connection or the need for human beings in companies and businesses.

Margaret Kelsey (28:56)

Yeah. If anything, I think that just becomes the more important part, right? We automate the stuff that can be automated so we can show up together as human beings and build those relationships and have that connection time.

Tony (29:14)

Yeah, yeah, that would be nice. Hopefully we're all at the beach or golfing or having dinner together rather than work.

Margaret Kelsey (29:20)

Let the bots do the work. We're going to grab a piña colada. Thank you, Tony.