Business software survives because people who never log in depend on it
A Thoma Bravo partner says the real user count is far larger than the login count, and that hidden dependence protects old software.
Joys of Compounding · A.J. Rohde: Living in the (Software) Limelight [Joys of Compounding, Ep. 38]When stock investors started declaring business software dead in the age of artificial intelligence, A.J. Rohde, a senior partner at Thoma Bravo, a private equity firm that buys software companies, was asked what they had missed.
He argued they had lumped everything together, from cybersecurity to developer tools to the sticky programs that run a company, and ignored how many hands touch one system. He described a shadow economy of downstream reliance that builds up inside customers around the software.
Rohde meant this literally. Take Salesforce, the customer tracking database many companies use to log calls, deals, and complaints. Only some employees hold a seat license, which is a paid login. But Rohde said many more people do work downstream because of "information that came out of that database," from fulfilling an order to handling a follow up task, all set in motion by what the system decided.
That hidden dependence is why replacements stall, he argued. A chief information officer, the executive in charge of technology, who considers ripping out the core program will conclude, "I don't know what would happen if I do that." So instead of a swap, the company tries small pieces on the side, like customer support tools, while leaving the center alone.
Rohde also said where newcomers may have a chance. If a startup sits "on the edge of the system," he said, it is more exposed to challenge and can succeed. He pointed to Harvey, an AI helper used in legal work, as an example that has done well without replacing the core record. People are not yet willing to do the work to rebuild the system that anchors everything, he said, because they cannot predict what breaks downstream if the core system is removed.
Questions people ask
What is a seat license?
It is a paid login for one person to use business software. Companies often buy a set number of seats, so executives count those logins as the user base. Rohde's point is that the true number of people who rely on the system is much larger.
What does he mean by the edge versus the core of a system?
The core is the central database and workflow that everyone else builds on, like customer records in Salesforce. The edge is a specific task plugged into that core, like drafting a contract or answering a support chat. Edge tasks are easier to replace without breaking everything else.
Does this mean old software can never be replaced?
No. Rohde says the protection lasts for longer, not forever. He also says customers want what his firms sell now, but that will not stay true forever if his firms do not handle AI well.