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AppSumo founder Noah Kagan shares how AI is disrupting the software deals…

2026-02-06 · 18:41 UTC ·noahkagan ·3 min read

Brief

Noah Kagan's post provides a detailed case study of how AI disruption is forcing fundamental business model changes at AppSumo, a 15-year-old software deals marketplace. The core challenge is economic: AI infrastructure costs have compressed software margins from 90% to 10%, making it nearly impossible to offer the deep discounts that built AppSumo's lifetime deal model. Simultaneously, AI capabilities have commoditized entire categories of software - customers no longer need dedicated tools for blog writing, SEO advice, or basic automation when ChatGPT can deliver 90% of the value instantly. This creates a double squeeze: fewer viable products to promote and customers who expect outcomes rather than tools. Kagan's response strategy involves aggressive experimentation across multiple vectors: testing AI credit bundles, promoting non-AI products with better margins, pivoting toward service providers who deliver finished outcomes, and developing TidyCal as a platform for human-centered businesses like therapy and consulting. The company has also restructured operations, moving some roles to contractors and streamlining deal vetting processes. What makes this particularly valuable is Kagan's transparency about the uncertainty - despite having clear strategies, he acknowledges they don't know which approaches will succeed, emphasizing rapid experimentation over perfect planning.

Why it matters

AppSumo founder Noah Kagan shares how AI is disrupting the software deals marketplace business:

Key details

  • [margins] Software margins collapsed from 90% to 10% due to AI token/credit costs
  • [competition] LLMs have eliminated demand for low-value software like blog writing tools
  • [business model] Company shifting from 95% lifetime deals to testing AI credits, bundles, and recurring revenue
  • [market shift] Customers now want outcomes rather than software tools, creating distribution challenges
Source evidence

title: @noahkagan: This is not a boo hoo post but more sharing in public as many companies are goin...
author: noahkagan
contenttype: twitterarticle
published: 2026-02-06T18:41:04+00:00
source_url: https://x.com/noahkagan/status/2019843805592318190

word_count: 691

This is not a boo hoo post but more sharing in public as many companies are going through challengin

This is not a boo hoo post but more sharing in public as many companies are going through challenging times. I never blame the market as it’s our responsibility to do things customers want and I think there are many mistakes we have self-inflicted.

What’s wild is that in 15+ years of running this software deals business we have never had the volatility or threat of not being around as when AI has accelerated everything. But in all challenges come opportunities as well.

It feels like everyone else is also looking around to try and figure out how to not just survive and eventually thrive.

So what are the headwinds and challenges facing AppSumo:

  • Software margins have gone from 90% to 10%.

  • Before AI costs most software was pure profit where now with tokens, credits or what not have minimized the amount of money a creator can make. For us this severely limits how great of deals we can do.

  • It’s easier to quit now.

  • You can spin up a software product in minutes and quit in seconds. This wasn’t the case a few years ago where you had to be serious to get the product online, collect payments, etc…

  • No one wants software, they want outcomes.

  • The LLMs have become so good you can get SEO advice, finance tips and everything instantly and it knows you. No needing to do heavy setup or really the work yourself.

  • LLMs have killed low value software.

  • You don’t need to pay monthly subscriptions to things like writing blog posts, ChatGPT can get you 90% of the way there.

  • We are underwriters in uncertain times.

  • Our business model is still 95% lifetime deal (LTD), and we’ve become more a bank trying to ensure these companies stick around. It’s created more vetting process and fewer deals we are willing to promote.

  • Negative brand sentiment.

  • In the past we’ve had a vocal group of customers who were great advocates for early stage software. But because of company closures many of them don’t buy anymore and actively talk negatively about us.

So what are we doing about it:

  • Distribution is still key

  • . We built a test product on our Sumo site and after launch I looked around and was like - dang, still need distribution. We have built a great community and have wide reach still that is valuable for many software companies

  • Aggressive testing of new deal types.

  • Selling lifetime deals was great but we need to evolve with the market of AI costs. We are testing selling ai credits, bundles, recurring deals, ltd access + discounted credits.

  • Promote Non-AI cost related products.

  • They still have margins and need help. There are less of them but still WordPress, icons, etc.

  • Sell outcomes

  • . Can we promote service providers or instead of AI to make you a video, we are going to test just selling you a video.

  • Improve processes and reduce costs.

  • Last year - some people quit, some people we let go of or moved to contractors, streamlined deal vetting, replaced software with AI. All helps with buffer to experiment.

  • Develop TidyCal.

  • Many people STILL want humans for therapy, consulting and we are seeing insane traction giving them the platform to run their businesses.

  • Optimism.

  • It's FREE! And there's an unlimited supply. I believe we can help software creators, our Sumo-lings (customers) and our team for the future. We will get there.

Time for Action.

This is our motto. We don’t know what will work but we have a plan and are defaulting to action to get there.

I love promoting things to help entrepreneurs, loved it 15 years ago, love today. We've tried a few things like bundles, workshops and have new tests coming very soon.

At the end we have ideas of what can help us but surprisingly we don’t know the answer what will help us grow. That’s part of the fun! If you have any ideas, suggestions or feedback - love to hear them.

Posted: 2026-02-06T18:41:04.000Z

Engagement: 380 likes, 0 retweets, 77 replies