# Complexity Premium When simple models commoditise, complexity becomes the entry fee to large markets. - Pure software rested on three pillars: zero marginal cost, lasting value and high switching costs. - AI weakens all three. Inference has a real cost. Tools age faster. Agents switch with ease. - Demand does not fall. The clean income statement goes away. ```mermaid graph TD A[Old model: simple, high margin, large] --> B{Code commoditises} B --> C[Large and complex] B --> D[Small and simple] B --> E[Mid-sized pure application] C --> C1[Lower margin percent, more cash in total] D --> D1[High cash per person, low terminal value] E --> E1[Squeezed from both sides] ``` ## How to read the numbers - Do not compare a complex firm to the old model on margin percent. - Compare total cash, durability and contract size. - Treat training cost as cost of goods when models depreciate fast. ## The trade - Accept services, hardware, risk or regulation. A clone cannot copy these in a weekend. - The complexity must create switching cost. Complexity without switching cost is only overhead. ---- tags: #boat #economics #AIstrategy links: [[Scarcity Migration]] [[Concepts MOC]] [[AI Disruption Risk Is Not Uniform - Thoma Bravo]] [[Industrial AI Unit Economics]] [[Liability Absorption]]