Distribution in the Era of AI: A 5-Part Series

Part 1:  Distribution Channel Headwinds in the AI era

AI is reshaping everything about how software gets built. At Second Coffee, in the past year, we have used tools like Claude Code and Cursor to create RivalSee, Tell Mel, and more, about 2-3x faster than we could have previously.

The barrier to building software is disappearing. What used to require large teams and significant time investment can now be done by small teams (or even solo founders)  moving at incredible speed with AI as their technical partners.

Which means: As building software gets easier, distribution is getting a lot harder.

And as much as AI is transforming software development, its impact on distribution may be even greater. The playbook everyone learned over the past decade is becoming obsolete.

Given the importance of distribution and the changes that are happening, I put together a five-post series to talk about which channels will have headwinds and which will have tailwinds.

First, the headwinds.

Old Distribution Channels Are Going To Have Headwinds

Just a few years ago, software distribution felt like a solved problem:

• Create super-targeted ads and pay to distribute them on Facebook, Instagram, TikTok, and YouTube. Experiment, deploy, and repeat.
• Optimize your website for keyword searches in Google with appropriate backlinks.
• Set up simple email drip campaigns for leads and have an SDR force acquire, filter, and qualify leads.

It worked. It was predictable. Companies built entire growth strategies around this trinity of channels.

Those days may soon be coming to an end as both demand and supply are changing for all of these. Let’s go more in-depth for each.

Facebook and Instagram: The Noise Floor is Rising

AI is democratizing ad creation for visual social media like Facebook, TikTok, and YouTube. Anyone will soon be able to generate thousands of amazing video ad variations with personalized copy and compelling visuals, both cheaply and in minutes. As a result, we can expect 10x-100x the number of ads produced as we see now. The result isn't the death of these platforms; it's a massive increase in competition and cost.

Think of it like YouTube's content evolution. In the beginning, highly edited content was pretty hard to make. Then tools came like high-quality phone cameras, CapCut, iMovie, and more, that made video creation and editing easier.  When everyone could make videos easily, the quality bar skyrocketed. The minimum quality and sophistication required to break through on YouTube now is 10x higher than it was five years ago.

As AI-generated video ads become trivial and cheap to produce with sites like Creatify and others, we are going to see a huge increase in video ad creation on all social media channels. Whereas it used to cost thousands of dollars and weeks to produce each video ad, AI tools will soon be able to make realistic, professional-quality ads with realistic people in minutes and for the price of a cup of coffee. Yes, there is a short window when savvy AI-first companies can be the first to take advantage of new AI tools (please do it!), but that advantage will go away quickly.

Long term, the result will be a much tougher, more saturated market than ever before. Marketing teams will need complex AI just to compete, and any short-term advantage may quickly go away as other competitors can quickly build substitutes. It is going to be a grind.

Google SEO: From Links to Conversations

The way we market on search channels is going to fundamentally change. Sites spent billions of dollars in aggregate to lure people from Google Search to their website, where they sold ads or tried to generate leads. Trillions more have been spent on SEM or paid Google ads.

Google isn't going anywhere, but how people search is undergoing a fundamental change. Instead of typing "best project management software" and clicking through blue links, users are asking ChatGPT, Perplexity, and Claude: "What's the best tool for a remote team of 15 people who need time tracking and client billing?" - with 2-3 follow-ups.

The game is shifting from ranking for keywords (or paying to appear as a sponsored ad) to being the answer in AI responses. Search will still drive some traffic, but sites focusing on SEO are already seeing the impact, with many seeing a 30%+ decrease in traffic.

Content sites that were built to provide information ("how to remove a stain from a shirt") and monetize via ads are getting hit the most as their content is aggregated and summarized in AI responses. Review sites that monetize on affiliate revenue are seeing their businesses slowly fade as people use the AIs for personalized recommendations.

Meanwhile, SEO is being replaced by AI Visibility Optimization (AIVO) (Also known as GEO/AEO and a dozen other names) - the ability to measure, monitor, and boost how well your brand is appearing in AI chat results - a challenge we're tackling directly with our new AI visibility boosting tool, RivalSee.

This does not mean SEO goes away or that SEO techniques are not useful for AIVO (it won't go away, and they are still useful). It does mean the channel is going to change significantly, with SEM becoming less useful and SEO changing significantly. It also means new greenfield opportunities - which I will talk about more in the next post.

Email Marketing: The Personalization Arms Race

Today, outbound email is still an active marketing channel, and one would think AI would help make this better. AI is making it trivial to research prospects and craft emails that feel genuinely personal. AI workflows can now find qualified leads, enrich their data, and send out individualized cold emails at scale without human help.

The problem is the second-order effects of this. When everyone can send emails that reference your recent LinkedIn post and acknowledge your daughter's soccer tournament victory, personalization stops being personal. Everyone will start becoming immune to the effects of personalized emails and treat them as spam.

We're not going to see the complete death of email marketing. We're just going to see an arms race where the bar for "good" outreach keeps rising exponentially, and a fatigued set of customer prospects will have inboxes overflowing with 10x the cold emails they have now. People will become even more skeptical than they are now, resulting in a continuing decline in response rates.

The VC Shift from Product and Team Capital to Marketing Capital

As I mentioned above, with the influx of AI ad creation, ads in search and social media are not going away. They are just going to get more expensive and be more about companies with big pocketbooks than about SMBs. Another way this may grow is a shift even further from VC funding R&D and engineering to VCs funding marketing.

VCs originally started as a way to fund capital-intensive technologies. Over the last few decades, as software development has become easier, many VC dollars have shifted from supporting development hurdles to overcoming market hurdles. In an article a few years ago, it was estimated that 40% of VC investment went into the hands of Meta and Google in terms of marketing spend.

Now that engineering is becoming quicker and easier and distribution is becoming harder, I anticipate this trend to accelerate and that number to become much higher. VCs will move from being the source of product and team capital to the source of marketing capital. More VC funding will be spent competing in these increasingly expensive channels to win mindshare, with the hopes that it can translate to profits later on. This is already happening in startups, but it is about to become even more concentrated. Investors who shift their focus to actively helping their portfolio companies win distribution will be the ones entrepreneurs seek out first.

In the next few posts, I'll talk about some channels that have tailwinds and some new opportunities.