The software sector is hitting a moment of truth. In a recent CNBC interview, Apollo Asset Management co-president John Zito described what he sees shaking out as the early innings of a “very violent technology cycle” driven by AI.
That doesn’t mean software is disappearing, but it does mean the way it’s valued and financed is changing rather quickly.
Software pricing models under the spotlight as AI changes the market
According to Zito, between 2018 and 2022, software made up roughly 30% to 40% of the private market. The thinking at the time was pretty simple: retention rates in the high-90% range, reliable recurring revenue, and little real risk of disruption.
That combination made it easy to pay a premium, and it spurred a bunch of take-private deals across the sector. Now, those same assumptions are being questioned.
As Zito put it, “None of us at Apollo think that software is going away. In fact, we actually think software is going to be used a whole lot more. It’s just a question, what are you going to pay for it?”
That shift is already apparent in the public markets. Shares of companies like Salesforce and Workday have come under some pressure lately as investors reassess how much uncertainty they’re willing to put up with, and what that means for valuations that once felt untouchable.
“The discount rate that the market is putting on this is already applying the uncertainty,” said Zito.
Revenues and laggy disruption
One of the more grounded points Zito made is that disruption doesn’t always show up right away when it comes to revenue numbers.
He pointed to the iPhone launch in 2007 and the fact that BlackBerry sales didn’t peak until 2011. In other words, healthy revenue today doesn’t necessarily mean insulation tomorrow.
That shift also hits the people who financed all those software deals over the past few years. A lot of money went into software when it felt like a safe bet.
The risks didn’t seem super scary, and the revenue looked steady and reliable. Apollo has been pulling back for about 18 months now, which really highlights the fresh skepticism.
Goldman Sachs CEO David Solomon recently said the narrative around AI disruption “has been a little bit too broad.”
Blackstone CFO Michael Chae echoed that there will be “a range of outcomes,” with larger, well-entrenched firms potentially benefiting.
What this means for MSPs: customers will have questions, and their partners need to have answers
When software companies start feeling pressure from investors, it usually shows up somewhere. It might show up as higher prices. Or features changing. Or contracts that aren’t quite as easygoing as they once were. Clients notice that, and MSPs are usually the first call when they have questions.
Then there’s the AI piece. As more AI features get built into the tools businesses use, someone has to help sort through what’s genuinely helpful and what’s just static.
That’s often when the MSPs step in to translate the impact in practical terms, whether that’s cost, security, or day-to-day usability.
What Zito is describing is already playing out in real time. Software isn’t going away, but the easy assumptions that once drove sky-high valuations are clearly being reworked, which will ultimately likely affect everyone connected to the ecosystem.
MSPs are approaching AI adoption with a lot more discipline, focusing on real use cases and measurable outcomes instead of flashy features. While investors debate valuations and disruption risk, service providers are the ones testing what actually works in live environments. Read more here.