OpenAI will replace a lot of software we use today. But I think there is a kind of apps that will will actually benefit from it: Luxury software. We've got things like fancy cars, designer clothes, and big houses. Luxury software? Not so much. But I think that's about to change.
The perfect example might be Superhuman. I believe what makes Superhuman special is not just how quickly you can go through your inbox. When you use Superhuman, it feels like you're using digital equivalent of a Porsche. There's a delight in every detail. You can feel the considerate design choices. The 'Sent from Superhuman' signature’ is also a flex.
Let’s look at another example. Rize is a fairly expensive automatic time-tracker. It targets people who want to get the most out of every waking hour. They've got a big community of 4,000 on Discord. You know the crazier part? It’s made by just two people!
RIZE is a perfect example of luxury software. It makes your routine tasks fun via gamification, provides you with beautiful charts you can share for signaling, and tracks your time automatically with AI – all making it feel high-end. I see a lot of my friends in startups sharing their RIZE charts on social media. Watching them do that got me to try RIZE, and now I'm subscribed too.Most of the major tech players view these products as mere toys.
Tools like Rize have a relatively small market. And they lack moats that attract investors, like unique technology or network effects.Yet I think this is where small teams should focus on. Most people aren't trying to build the next unicorn. They just want to make money doing what they love.
But why are we seeing luxury software become a viable business model now?
I believe it’s GPTs.
YouTube made dramatically cheaper to distribute videos to millions of people. Nowadays, people making videos just focus on creating awesome content, and YouTube takes care of the rest. This big change in how videos get out there has made a lot of content creators pretty wealthy.
A similar thing is happening to product development. GPTs are lowering the cost of building products by probably over 90%. This lets product makers target niche audience and still create a profitable business.
More people will also want luxury software. A lot of solo entrepreneurs and small teams are now hitting tens of thousands of monthly revenues. In the physical world, people buy fancier cars when they make more money. So, as we start to see more software millionaires, I bet they'll spend more on fancy software too.
I would love to know how other members in the community think about this trend!
I think you can have luxury software, because we have luxury handbags, luxury watches, luxury perfume/cosmetics. The marginal cost of making things like cosmetics/perfume/handbags/watches are almost nothing compared to their retail prices as luxury goods.
People will pay $100/bottle for a perfume when it cost like $2 to make and distribute.
The economics of luxury goods is not about marginal cost, but about perceived value. Free software works if you have network effects and the value of the software increases with number of users like social networks. If there is little network effect, you can have a luxury niche in software just like you have with handbags/watches/perfume.
Another aspect of luxury is social status. I think this is where software falls short because people can't easily see what software you use. Software doesn't confer status the way handbags, watches do.
I think software can definitely have brand value. There are definitely associations with software you use. For example: Linux = hacker.
Luxury is ultimately about status and perceived value, not code/UI/usability.
But still the luxury handbag will be better than the non-luxury one. Whereas the luxury software will be worse, because the non-luxury brand can afford way more manpower to make it great. On the other hand, a luxury software company cannot afford the ad spend to increase brand perception.
The essence of the software business is the vanishing marginal cost. That is what makes the business model so great.
A luxury software essentially cuts itself out of the single most value generating market mechanism in the industry.
I don't say luxury software is impossible. But I say that the market dynamics of the software industry are such, that the dominating players and vast majority of successful businesses (wrt. to revenue, size, cultural influence) will be mass market or specifically tailored b2b products. Not luxury goods.