Bundling vs Unbundling Wave-Reading
Read where the market sits in the eternal bundle/unbundle cycle to decide vertical vs horizontal.
- Difficulty
- Moderate
- Time to result
- ~ongoing to results
- Steps
- 4
- Confidence
- 85%
Software markets oscillate between unbundling (many specialized point solutions) and bundling (integrated suites), like a historical cycle. Reading which phase the market is in — plus the prevailing technology and macro conditions — tells you whether more value will be created by a vertical point solution or a horizontal bundle right now. The pattern repeats but the direction shifts, so the read is time-dependent.
Origin
Ivan Zhao mapping the PC-era, Microsoft-suite era, and SaaS era onto a bundling/unbundling cycle, quoting the opening line of the Chinese classic Romance of the Three Kingdoms.
Core principles
- 01Markets alternate between unbundling into point tools and bundling into suites
- 02'Long united must divide; long divided must unite' — the cycle is historical and recurring
- 03Technology and macro conditions tilt which phase creates more value
- 04Excess in one direction (too many tools) sets up the swing back
How to run it
- 1
Locate the current phase of the cycle
Diagnose whether the market is unbundled (many vertical point tools) or bundled (integrated suites). Zhao reads the present as 'the tail end of SaaS' with companies using nearly 100 tools — an unbundled extreme.
Pro tip Excess fragmentation ('kind of Madness') is a signal the pendulum is due to swing back toward bundling.
- 2
Factor in enabling technology and macro
Weigh how new technology (e.g. AI) and macro conditions change the economics — AI favors bundled, horizontal tools because it reasons better when all the data is together.
Pro tip AI is 'really good with bundled offerings' and horizontal tools because unified data improves search and reasoning.
- 3
Choose vertical or horizontal for this moment
Decide whether to build a vertical solution or a horizontal bundle based on the phase read — they do different things and suit different moments in the cycle.
Watch out The market could shift again — treat the choice as time-bound, not permanent.
- 4
Steal patterns from outside tech and history
Look sideways into other industries and back into history for recurring patterns of consolidation and fragmentation to inform the read, rather than only watching what happened six months ago in tech.
Pro tip Reading widely (history, complex systems, other industries) surfaces patterns you can apply to the problem in front of you.
In the wild
Zhao traces the cycle: paper democratized knowledge work, then 1980s PCs unbundled it into many applications like dBase, Microsoft bundled everything into one suite in the 1990s, SaaS unbundled it again, and now the market sits at the tail end of SaaS with companies using almost 100 tools.
→ Zhao reads the current macro plus AI as favoring a bundling approach, informing Notion's bet on a horizontal, bundled offering while acknowledging the market could shift again.
Common mistakes
Assuming the current phase is permanent
The cycle recurs — 'Market could shift again' — so committing to horizontal or vertical as a timeless truth ignores that the same excess that favors bundling today will eventually favor unbundling.
Only watching recent tech news for the read
Tech's obsession with the last six months blinds you to the longer historical pattern; Zhao argues you must look outside tech and into history to correctly read which phase the market is in.
Is it for you?
Best for
Founders and strategists deciding whether to build a vertical point solution or a horizontal bundle in the current market.
Not ideal for
Teams that need a single durable positioning and can't revisit strategy as the cycle turns.
From the transcript
“there's two way to build business bundling and bundling”
“Empires long United must divide long divided must unite it has always been bundling un bundling”
“there's so many vertical light SAS average company to use like almost 100 tools it's not it's kind of Madness”
From the episode
Notion’s lost years, its near collapse during Covid, staying small to move fast, the joy and suffering of building horizontal, more
Ivan Zhao (CEO and co-founder)