"Be Different" doesn't work for building products anymore

We are in the middle of the biggest red ocean I have ever seen in software development.

(Originally from iamcharliegraham.com)

We are in the middle of the biggest red ocean I have ever seen in software development.

Thanks to AI coding, it has never been easier to design, develop, and distribute software. A process that once took months - designing in Figma, having developers write and test code, and deploying to AWS - can now take days with tools like Claude, other vibe-based coding assistants, and quick and easy deployment sites.

Yes, non-developers may hit a “vibe wall,” and yes, the code may run into huge technical debt quickly, but developers using AI coding tools can build new software from scratch probably 5x faster than before.

The result is a Cambrian explosion of software launches.

Where a great idea in a space once had 5-10 competitors, hundreds now appear - all competing for attention. Big companies used to move slowly, but now a ragtag team of two developers at a large firm can whip up something that looks top-of-market to the untrained eye in a matter of weeks.

Your company can scream to anyone that listens that all the competition is AI SLOP, but when hundreds of companies are pitching the same solution, your one voice will get lost.

In the past, the best practice to win in a competitive market was to differentiate yourself - “be different,” as Steve Jobs would say.

But product differentiation is no longer effective in this new world.

• Differentiate on an amazing UX? You used to rely on your awesome UX team for a sustainable advantage. Now, dozens of competitors can screenshot (or soon video) your flow and give it to an AI to reproduce quickly.

• Differentiate by excelling at one feature? You might get a temporary lead, but it’s now pretty trivial for competitors to get close to your functionality.

• Differentiate on business model? If it starts working, dozens of your recently started competitors will vibe-code a switch over.

• Differentiate on “proprietary data”? This isn’t the key differentiator it was expected to be, as we are finding data can be simulated or companies can find similar-enough data to get 80% of the way there.

Instead we live in a red ocean where features are copied in days or weeks and everyone is fighting with similar products for the same scraps.

So what does work?

Proprietary & Large Distribution In a red ocean, distribution is king. The companies that have existing distribution channels (their own communities, customer lists, celebrity CEOs) will get market share. Big companies have the edge here, but startups can compete if they have a pre-existing distribution network.

Going into a Complex and Unknown Niche The best way to avoid the red ocean is to build for an obscure and complex niche. Think: automating claims paperwork for agricultural veterinarians. Very few builders know enough about the space, let alone have distribution, and there are likely enough regulatory requirements to make a niche solution essential. Unfortunately (or fortunately) most of these niche markets will be too small to be VC-viable.

“Hard” or Expensive Integrations Builders gravitate toward the easiest solutions - it’s why AI wrappers are so prevalent. The annoying-to-build products will still have barriers. This includes software requiring difficult, per-company integrations or hundreds of integration points before becoming viable. Most builders will shy away from it for lower-hanging fruit. Companies that require expensive data sets to work also fit here, as most won’t spend hundreds of thousands of dollars before going to market.

Network Effects Businesses Products that have true, large network effects will still rule. The product needs to get noticeably better the more people use it. Social networks and marketplaces fit this model. Small, on-the-margin network effects or those that reach a limit (like optimizing based on usage) will not result in a sustainable advantage.

Compounding Data Lock-in Products can thrive if they become the system of record for operational data that your company constantly references. Consider CRM systems with years of customer interactions or content management systems with thousands of interconnected files. With every new entry, migration becomes more painful—not because of the raw data, but because of the platform-specific relationships and context that are hard to export. Your business becomes so dependent on that history that leaving is prohibitively complex and risky.

Regulatory Barriers If your product requires lots of regulatory permissions (FDA or SEC approval), this can prevent others from entering. Of course, these are also harder to get off the ground.

Bundling By Big Companies - For many products, the red ocean won’t be won. It will be absorbed. We’re going to see a wave of big companies building 80% good-enough solutions and simply bundling them into their platforms. Most of today’s standalone AI products are destined to become mere “features” in a larger solution. We’re already seeing this with Box, Notion, and Google. Expect a lot more of it.

This is the best of times and the worst of times for entrepreneurs. Knowing how and when to compete is the difference between having a good chance of building a sustainable, successful company and just picking a lottery ticket and hoping.

If you are experienced in a complex niche and want to build something there, let me know!