Software Industry Grew 5x After Open-Source Scare
Software stocks have entered a bear market as investors price in fears that artificial intelligence will commoditize the industry. However, this is not the first time the sector has faced a perceived threat from "free code." The rise of the open-source movement in the 1990s sparked similar concerns that freely distributed products would collapse software pricing. Instead, the software industry expanded to become five times larger over the following quarter-century, demonstrating that value extends far beyond raw code.
The historical precedent shows that enterprise customers purchase reliable outcomes, not just programming. According to Appian CEO Matt Calkins, buyers prioritize technical support, service agreements, security certifications, and the assurance of a vendor with a proven track record. Companies like Red Hat built valuable businesses by providing support and services around open-source Linux code they did not own, proving a software company's primary assets are often its reputation and support ecosystem.
Probabilistic AI Deemed Unsuitable for Critical Systems
AI-generated code presents a similar dynamic but is less of a threat for mission-critical applications. Unlike open-source software, which is often vetted by a large community, AI code is typically purpose-built for a single organization, leaving users with no support network when errors arise. Furthermore, AI operates on a probabilistic model, meaning its outputs are inherently unpredictable and prone to mistakes or "hallucinations."
This lack of total reliability makes AI-driven code unsuitable for essential business functions like regulatory compliance or customer relations, where 100% accuracy is required. While AI may automate the creation of minor applications, it needs a deterministic software layer to provide guardrails for complex tasks. Consequently, AI is more likely to lower development costs for software companies than it is to eliminate them. As Oracle's Safra Catz stated in 2012 about emerging threats:
If you are in this business long enough, you hear about a thousand things that are going to kill you. Open source? Yeah, we are not dead yet.
— Safra Catz, Oracle
Edgen Stock·Feb 26 2026, 17:05
