Since AI Can Now Magically Code Complex Applications, What Happens to the Traditional Focus on Building Tech Product Companies vs. Service Companies?

Recently, Klarna, a global leader in the fintech space, made headlines by announcing that they are replacing their Salesforce and Workday implementations with custom-built systems—using AI. Although many people are skeptical that AI is at the state that this is really possible, I am personally certain that we will get to some form of this in the near future (see my recent for a bit more explanation). Klarna’s bold move, or maybe just a bold announcement, highlights a potential trend where companies are leveraging AI to bypass the need for expensive, off-the-shelf enterprise software, opting instead to create tailored solutions quickly and efficiently. Klarna’s decision signals a potential shift in how companies think about software development and the broader business model of tech product companies versus tech service companies.

But what does this mean for businesses that have historically relied on selling software products? Does AI’s ability to build complex applications at lightning speed spell the end for product companies? Or will it lead to a new hybrid model where both products and services are essential? As we explore these questions, it’s important to remember that while AI is transforming the landscape, the future isn’t as clear-cut as it may seem.

AI-Driven Software: Changing the Game for Development Speed

The rise of AI tools capable of coding applications has brought the process of software development to new heights. Tasks that once took entire teams months to complete can now be done in a fraction of the time. Klarna’s decision to build its own AI-driven systems instead of relying on established platforms like Salesforce shows just how transformative AI has become.

This technological leap raises a fundamental question for companies that have built their business models around selling software products: how do you stay competitive when AI can create similar products so quickly? Are we about to see a mass migration from product-first companies to service-first models, or is there space for something in between?

Learning from Open Source: Will AI Lead to the Same Shift?

When open-source software began gaining popularity in the early 2000s, many believed it would render paid software obsolete. Why pay for something that was available for free? Yet, instead of erasing the market for proprietary software, open source changed it. Companies like Red Hat thrived by offering services, support, and expertise around open-source tools rather than just selling a product.

Similarly, AI may democratize software development, but it likely won’t eliminate the need for expertise, customization, and maintenance. Companies may still sell products, but they will need to pair them with services that AI can’t easily automate. Just as Red Hat built a business around open-source support, today’s tech companies may need to shift their focus from pure product sales to service and solution-oriented models.

Hybrid Models: The Path Forward?

While it’s tempting to assume that AI will push every tech company toward a service-based model, the reality might be more nuanced. AI makes software development faster, but that doesn’t mean it can replace all human input or expertise. Klarna’s decision to build its own systems demonstrates how AI can enable businesses to create tailored products quickly, but it also highlights the ongoing need for specialized knowledge to ensure these systems are secure, scalable, and integrated with other business processes.

A hybrid model—where companies continue to sell products but enhance them with high-value services—may be a realistic path forward. AI can generate the code, but human expertise will still be essential to optimize that code, ensure compliance, and meet specific business needs.

What Could the Future Look Like?

As AI reshapes the way software is built, here are a few scenarios that could emerge:

1. Hybrid Product-Service Models

AI could lead to an era where companies blend product offerings with service-driven models. Businesses might still sell software platforms but bundle them with services like customization, implementation, and ongoing support. For instance, Klarna’s AI-driven systems might reduce their reliance on external software, but they’ll likely require continuous updates and integration support, which could lead them to develop new internal service capabilities.

2. AI-Driven Ecosystems

Another possibility is that companies shift toward building AI-powered ecosystems. Instead of selling standalone software, businesses could create platforms that allow for rapid development and third-party integrations. Think of how Apple and Salesforce built ecosystems around their products, with developers contributing apps and services. AI could speed up product development, but the real value may lie in building a marketplace or ecosystem that fosters innovation and collaboration.

3. Specialization and Trust

In a world where AI-generated software becomes more common, not all solutions will be equal in quality or security. There will still be a market for businesses that can offer specialized, high-quality products and services. Companies that focus on compliance, security, and industry-specific solutions will have an edge over those relying solely on AI to churn out applications. Klarna’s choice to build its own systems suggests that while AI can accelerate development, businesses will still need to ensure the systems are robust and fit their unique needs.

Conclusion: Flexibility Is Key in an AI-Driven World

AI is undoubtedly changing the way companies approach software development, and Klarna’s recent move to replace major enterprise software systems with AI-built custom solutions underscores this shift. However, it’s too early to say that AI will definitively force companies away from product-first models and into service-first territory. The most likely outcome is a blend of both approaches, where companies use AI to accelerate product development but continue to offer value through services, customization, and expertise.

In the same way that open-source software transformed the industry without eliminating paid solutions, AI will reshape the business landscape. The companies that thrive in this new era will be those that are flexible enough to embrace both product and service opportunities, leveraging AI to create faster, smarter solutions while maintaining the human touch that businesses still rely on.

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