LLM competition fragments markets from 3 incumbents to 300

The market selloff in vertical software isn’t about immediate revenue loss — it’s about anticipated competition fragmentation. As Bustamante puts it: “You don’t go from 3 incumbents to 4. You go from 3 to 300.” When LLMs selectively destroy vertical software moats — 5 fall, 5 hold remove the engineering barriers that protected incumbents, anyone with domain expertise can build a competitor in weeks rather than years.

This is the supply-side consequence of Markdown skill files may replace expensive fine-tuning — if features are markdown files rather than code, the barrier to entry collapses and competition multiplies. Markets reprice on the anticipation of this fragmentation, not on current revenue decline. The implication for new entrants: competing on the collapsing moats (UI, workflows, data access) is a race to the bottom; durable advantage requires anchoring in proprietary data or institutional trust.