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Noah Kagan says AppSumo faces its most severe business volatility in 15+ years as…

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

Brief

Noah Kagan’s post is a candid operator view of how generative AI is disrupting the low-end SaaS and software marketplace ecosystem. He argues that AppSumo, after more than 15 years in the software-deals business, is seeing unprecedented existential pressure because AI has changed both unit economics and customer expectations. Products that once enjoyed near-pure-software margins now bear variable inference costs, undermining the economics of AppSumo’s core lifetime-deal business, which still accounts for about 95% of revenue. At the same time, Kagan says LLMs substitute for many narrow SaaS tools by giving users outcomes directly, while making it much easier for founders to launch and quickly abandon products, increasing platform risk and worsening customer trust after company closures. In response, AppSumo is experimenting with new pricing structures such as AI credits and recurring deals, emphasizing distribution as a durable asset, promoting non-AI categories with stronger margins, reducing internal costs, and investing in TidyCal, where human-centered service businesses remain resilient.

Why it matters

Noah Kagan says AppSumo faces its most severe business volatility in 15+ years as AI reshapes software economics and weakens the traditional lifetime-deal model.

Key details

  • Kagan claims software margins have fallen from roughly 90% to 10% because AI products now incur ongoing token and credit costs, making it much harder for AppSumo to offer attractive lifetime deals.
  • AppSumo still derives about 95% of its business from lifetime deals, which Kagan says has turned the company into an effective underwriter of startup durability; that has led to stricter vetting and fewer promoted deals.
  • He argues LLMs have commoditized low-value SaaS by delivering outcomes directly—examples include SEO advice, finance tips, and blog-writing assistance via ChatGPT—while also lowering barriers to launching and abandoning software products.
  • AppSumo’s response includes testing AI-credit bundles, recurring plans, hybrid LTD-plus-credit offers, promoting non-AI products with better margins, cutting costs through layoffs/contractor shifts and internal AI adoption, and leaning into TidyCal as a human-services scheduling platform showing “insane traction.”
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: 688 likes, 0 retweets, 155 replies