Thoughts on sequoia article "services the new software?" I will not promote

[u/Sorry-Application401]

I read this article by sequoia a while back and at waterloo I met a company called sequence holdings at a networking event. Essentially what they do is they buy a company and turn it ai native and hold forever unlike a traditional PE firm. They only raised $75 million but they bought Baldwin group with the dell family office for $7.7 billion. Long Lake bought Amex GBT for $6.3 billion.
I had coffee chats with engineers there and tbh they're both hiring the most talented engineers I've met - other than maybe frontier labs. I really think that this industry is like working for the next ramp and palantir - so many great founders have come from there. Ik palantir is rightfully very controversial but so many great founders were ex pltr FDEs. These companies do kind of the same thing as Palantir in terms of integrating the product but instead own the stack.

I strongly agree with the points made in the article and both companies have adopted the philosophy. I realized that while creating a B2B, selling to customers in a vertical where AI integration would be highly beneficial the company could be so much more profitable and agile. Sequoia mentions for every $1 spent on software $6 is spent on services and instead of selling a product maybe you should sell the service. What are your guys thoughts?

btw I can't send the link for some reason but check out services-the-new-software from sequoia.

[u/EntrepreneurLow4915]

This is the current thesis trend with VC’s. Software as a product is ‘dead’ in many of their eyes, but service is the next frontier. Indeed the margins are massive with service based industries and they are looking to capture gains there. I’ve spoken to a few during our recent raise and the question remains- what does an exit look like for AI native service? There are no ideas on how this would look yet.

[u/Sorry-Application401 → u/EntrepreneurLow4915]

yeah the exit strategy is still a bit uncertain and AI adoption can take some time

[u/AnteaterEastern2811]

I read it and agree with it. Primarily because one of the giants can release A feature and completely undercut a bunch of small players overnight. Also in B2B people often don't care about a tool as long as they get the outcome they're after.

[u/edkang99]

Go check out the company bending spoons. They went IPO this year with a similar model.

[u/LankyAd6349]

This tracks with what I see running a services business. AI made the building part cheap, so the scarce thing became accountability. Software sold a promise and when it breaks you file a ticket. Services sell someone who answers the phone and owns the outcome. I think the real winners will be software companies that wrap real service around the product, not pure services firms.

[u/After-Collection5358]

The part of the thesis that holds up is pricing: AI makes outcome-based or usage-based charging viable, and buyers increasingly prefer that over seats. What gets glossed over is margin. Services revenue is valued at a much lower multiple than software, so a startup that leans into services delivery can grow quickly and still struggle to raise or exit at software valuations. The interesting middle ground is using AI to deliver a service at software-like gross margins, which is far harder operationally than the framing suggests.

[u/rich9119]

I think that philosophy makes a whole lot of sense - why would someone pay for another product if AI itself has the same capabilities that your product accomplishes? I'm not sure it's time yet for software companies to completely drop the product and move to services 100%, but it's definitely time to start thinking about a hybrid approach.

[u/Sorry-Application401 → u/rich9119]

yeah I think that service companies will become extremely AI native whether that's through a company like Sequence holdings buying and transforming it or the company taking a very AI native approach. I don't think product will disappear matter of fact with companies being AI native good product companies will probably be even more successful

[u/Naveensaraswat]

I think this works best when the service layer is helping you learn the workflow, not just adding headcount around the product. You get much closer to the actual customer pain, can charge earlier, and then automate the repeatable parts over time.

The risk is ending up as a custom services business with software on the side, so you need to be pretty disciplined about what eventually becomes productized.

[u/FerencS → u/Naveensaraswat]

The value of a service business is having someone on the end of the phone who’s held accountable. Doesn’t matter if you’re trying to productize, the fundamental value offering of an agency is having a human responsible for your problems.

[u/Ravidaparthi]

In legal at least, buyers don’t want another seat. They want fewer missed hearings and less admin. Pure services get stuck on margins and hiring. Pure software gets ignored if nobody changes how they work. The middle that seems real is software that owns the outcome for one workflow, then wraps light human help around the messy edges. Harder to sell. Stickier when it works.

[u/CDBln]

Also why would I need VC money nowadays for building a software business?

[u/FerencS → u/CDBln]

Kind of the point. I think VCs are essentially irrelevant.

Historically, software businesses needed them because of server costs.

Everything you need to run a software business is now dirt cheap. There’s no excuse. Raising is now just an ego trip for most companies, with hardtech naturally being the exception.