Software ≠ Technology

Software is eating the world, and competition is eating the universe.

In our previous essay, we explored the dropshipping of software and how traditional moats are being replaced. TLDR: as AI and user-friendly infrastructure rails democratize software development, competition intensifies and allows anyone with an internet connection to compete. When barriers to compete diminish, companies investing deeply and creatively in advertising achieve escape velocity. Through every tech cycle, breakout companies recognized when the current innovation decoupled from technology. At that point, they crossed the chasm through distribution, not product. Today, we believe there is a technology decoupling in consumer SaaS (and it’s just starting).

Name Your Price

In the late 1990s, Web1 led to an explosion of online travel agencies (OTAs) vying for market share. Companies like Expedia and Travelocity were offering robust platforms with extensive flight and hotel options, leveraging advanced technology to attract users. Amidst this competitive landscape, Priceline entered the market with a unique "Name Your Own Price" model, allowing customers to bid on travel services. While innovative, this reverse auction system was initially met with skepticism and wasn't inherently superior to the more straightforward booking platforms offered by competitors.

Recognizing that technology alone wouldn't guarantee success, Priceline hired creative agency Butler, Shine, Stern & Partners to win on distribution. The result was one of the most successful ad campaigns of all time—the "Name Your Own Price" campaign starring William Shatner. This campaign was so memorable that it rebranded Shatner from the "Star Trek Guy" to the "Priceline Guy."

Captain Kirk aside, Priceline's early deep investment in distribution gave them escape velocity in a crowded market, helping them weather the dot-com bust and emerge as the category leader in OTAs — while many competitors vanished into obscurity. It wasn't until 2004, that Expedia launched their "Expedia dot com" jingle, while Travelocity (via McKinsey's marketing team) introduced the "Roaming Gnome" campaign. It took six years until Expedia and Travelocity finally drank the distribution > product Kool-Aid that Priceline had been sipping for almost a decade… Fast forward to today: Expedia Group (which owns Travelocity as well) has just 1/7th the market cap of Priceline (now Booking Holdings).

The decoupling of software and technology

The tail of any cycle creates a proliferation of competition, and today, we're seeing consumer software's tail. New development rails made the ability to compete more accessible, eroding technological moats and allowing for category saturation. This shift echoes past cycles where initial technological advantages waned, and the battleground shifted to effective distribution and marketing.

In the early days of consumer apps, utility products had viral loops. These weren't from savvy contact farming or referral features, but simply from the powerful "aha" moment in the user experience. Remember telling your friends to optimize sleep with SleepCycle back in 2010—or to Shazam a song? In the 2010s, these products were self-promoting because they were technologically novel. In the 2020s, these products (SleepCycle as one example) now spend massively on paid user acquisition through TikTok and Facebook to keep growing.

Did Sleep Cycle fundamentally become less of a delight or a worse product? No. Then why the shift from product led growth to paid media? The obvious explanation is the explosion in competition. With a quick search on the app store, there are near infinite substitutes. Fundamentally, what sleep cycle has done is no different than Priceline — shifting to distribution strategies to reach escape velocity and mantain dominance. This time with TikTok ads instead of Jingles.

The Imperative for Today's Consumer Software Companies

Are we arguing that product-led growth is dead? Absolutely not. Our friend from earlier, Captain Kirk, once said, "I don't believe in a no-win scenario." For consumer software companies, winning now requires a shift in focus. The bar for truly viral (& long term) products has risen to the level of transformative technologies like ChatGPT and Midjourney, gradually leaving traditional consumer apps in their wake. For us, the shift is obvious (yes, we’re biased): consumer software companies must look beyond the confines of their products and focus on how they distribute those products in the market.

Even if the competition has a materially worse product, the market will stay irrational longer than your balance sheet will stay solvent—favoring those that make decisions easy for the consumer.

Interested in exploring how we can help your company navigate this new era of consumer software? Let's chat.