AI and Software Development: How the Job Market Is Being Transformed

The software development job market is experiencing its most significant contraction in years. Recent data from Indeed shows software developer job listings have plummeted to just 65% of their January 2020 levels -a staggering 35% decrease. Even more telling, current vacancies are 3.5x fewer than the mid-2022 peak and 8% lower than this time last year.

This isn't just a minor correction - it represents the most dramatic boom-and-bust cycle among all major professional fields. No other industry saw hiring more than double during the pandemic boom, and none has fallen so precipitously since. While total job postings across all industries have increased by 10% since 2020, software development postings have declined by 34%—far outpacing downturns in marketing (-19%), hospitality and tourism (-18%), sales (-8%), and banking and finance (-7%).

Horsefly's own longitudinal data reveals a similar trend across major markets, including India, the US, the UK, Germany, and France, where software development demand has declined by 52% since late 2023:

At Horsefly, we see this as an inflection point that raises an uncomfortable question confronting the industry: Are we witnessing a fundamental shift in how companies value software development talent in the age of AI?

One might be tempted to attribute the slowdown to macroeconomic factors, like rising interest rates or reduced venture capital funding. However, this explanation does not fully account for why highly profitable tech giants like Microsoft, Meta, Amazon, and Google have dramatically reduced hiring or conducted large layoffs. From Horsefly’s perspective, something more fundamental is affecting software development specifically.

Through a talent intelligence lens, several patterns emerge:

• Extreme reactivity in tech hiring: The sector's hiring boom and bust were more pronounced than in any other industry, highlighting fundamental volatility in how companies value development talent.
• Perceived sufficiency of development resources: The hiring frenzy of 2021-2022 may have left many companies feeling well-staffed, reducing the need for new hires.
• Global decline in demand: Similar trends are observed in the UK, France, Germany, and Australia, indicating that this is not solely a US-centric issue.
• The AI impact: An AI impact score of 57 suggests that automation may replace certain development responsibilities, prompting a need for upskilling and reskilling:

The rapid advancement and adoption of generative AI tools for software development may be the most critical factor in the current hiring slowdown. These tools have fundamentally changed how software is created, maintained, and scaled.

Key observations include:

• Programming languages lend themselves to AI assistance: They are structured, rule-based, and predictable.

• High-quality training data is abundant: Open-source repositories like GitHub offer vast amounts of well-written code for AI models to learn from.

• Error detection is straightforward: Developers can immediately identify errors, and automated tests catch many issues, making AI integration smoother.

• Widespread adoption of AI tools: Approximately 75% of developers are already using some form of AI coding assistance.

Several companies have started to acknowledge AI’s impact openly:

• Salesforce has announced plans to maintain flat development headcount while hiring more in sales, citing a 30% productivity boost from AI tools.

• Smaller teams achieving significant scale: Companies like Linear and Bluesky have demonstrated that small development teams can support large user bases and complex products.

For developers, this changing landscape demands adaptation. Key recommendations include:

• Embrace AI augmentation: Leverage AI tools to boost productivity and stay competitive.

• Broaden your skill set: Full-stack development capabilities and business domain expertise will be increasingly valuable.

• Focus on higher-level skills: System design and architecture remain challenging for AI and differentiate senior developers.

• Rightsize your development teams: Reassess the appropriate size and skill mix.

• Invest in AI tooling and training: Ensure teams are equipped to leverage new technologies effectively.

• Focus on distribution and customer engagement: As development becomes more efficient, other bottlenecks may emerge.

According to Pragmatic Engineer, several organizations are explicitly acknowledging AI's impact on their developing workforce plans:

• Salesforce announced it will keep software development headcount flat after observing a 30% productivity gain from AI tools. Simultaneously, the company plans to hire 1,000 additional salespeople, suggesting they now see distribution—not development—as their primary bottleneck.

• Linear and Bluesky have demonstrated remarkable efficiency with small development teams. Linear serves over 10,000 companies (including OpenAI) with just 25 developers, while Bluesky has scaled to 30 million users with only 13 developers.

Will Crandle, CEO at Horsefly says, “From Horsefly's vantage point in the talent intelligence field, these examples suggest a significant shift in how much development talent is needed to build and scale sophisticated products. This is likely to be the case for a while, especially with teach teams acclimatising to the new AI tools. However, the need for Software Developers in the current workforce will inevitably drop, but with new profiles appearing, such as with the rise of no-code skills etc.”

Whilst overall the Software Development market is showing a decline, we are seeing an uptick in AI related skills such as Tensorflow and Vector Data tools, which demonstrates the momentum of AI related skills picking up:

The data points to two possible futures:

Scenario 1: The Productivity Revolution

In this optimistic view, AI-powered tools dramatically enhance developer productivity, enabling smaller teams to accomplish more. This sparks a renaissance in software creation, with more startups founded, traditional companies bringing development in-house, and overall growth in the industry—albeit with fewer developers per product.

Key indicators supporting this scenario:

• Companies like Linear and Bluesky achieving remarkable scale with small teams

• The emergence of new tools that enable non-developers to create software

• Reports of significant productivity gains at companies using AI coding assistants

Scenario 2: The Industry Stagnation

In this more pessimistic outlook, existing companies produce the same software with fewer developers, and the industry contracts overall. This scenario assumes entrepreneurs won't seize the opportunity to build new products more efficiently and that the overall demand for new software remains static.

However, from what the Talent Intelligence industry is seeing, this scenario seems less plausible given the continued need for software across industries and regions.

Perhaps the most transformative potential impact lies in AI's ability to make software development accessible to non-developers. We're already seeing:

• English-to-app startups - Companies like Replit, Lovable.dev, and Bolt.new are pivoting to offer "English to working application" services that allow non-developers to create software.

• Increased accessibility - Tools that dramatically lower the barrier to entry for software creation could lead to an explosion in the number of people building software.

• New opportunities for professional developers - As non-developers create more software with AI assistance, successful projects will eventually require professional development talent to scale, optimize, and maintain them.

According to Patrick Traynor, Horsefly’s CRO, this suggests a potential future where the initial creation of software becomes democratized, but professional developers remain essential for sophistication, scale, and maintenance.

For current and aspiring software developers, this changing landscape requires adaptation. At Horsefly, we recommend:

• Embrace AI augmentation - Developers who effectively leverage AI tools will significantly outperform those who don't.

• Develop "full-stack" capabilities - The ability to work across the entire technology stack (backend, frontend, mobile) becomes increasingly valuable as teams shrink.

• Cultivate business domain expertise - Understanding specific business domains helps developers identify where and how to apply technology solutions.

• Focus on system design and architecture - These higher-level skills remain challenging for AI tools and differentiate senior developers.

• Build entrepreneurial skills - As creating software becomes easier, the ability to identify problems worth solving becomes more valuable.

For companies building software products, the changing landscape suggests several strategies. Horsefly recommends:

• Rightsize development teams - Evaluate whether your development organization is appropriately sized for the current productivity environment.

• Invest in AI tooling - Ensure your development organization has access to and training for the latest AI-powered development tools.

• Rethink job descriptions - As productivity per developer increases, focus on hiring developers with broader skill sets and domain knowledge.

• Explore non-developer creation - Consider how non-technical team members might contribute to software development with AI assistance.

• Focus on distribution - If development is no longer the primary bottleneck, shift resources toward distribution, sales, and customer acquisition.

Looking ahead, from Horsefly's talent intelligence perspective, three scenarios seem most probable:

• Augmentation dominates - AI tools make existing developers significantly more productive, leading to smaller teams building more sophisticated products. Companies maintain or reduce development headcount while increasing output.

• Democratization explodes - AI tools enable a vastly larger population of non-developers to create software, leading to an explosion in software creation. This eventually creates new opportunities for professional developers to enhance and scale these AI-initiated projects.

• A hybrid future emerges - Both augmentation and democratization proceed simultaneously, with professional developers becoming more productive while non-developers also begin creating software. The result is a more complex ecosystem with different tiers of software creation.

Of these, from Horsefly's viewpoint, the hybrid future seems most likely—a world where professional software developers remain essential but work in smaller, more productive teams, while a new class of "AI-assisted creators" emerges to build simpler applications.

The software development job market is undoubtedly changing, but neither unbridled optimism nor pessimistic doom-mongering captures the likely reality.

Matt Hassey, our Global Customer Success Manager, believes we're witnessing the early stages of a significant transformation—one where AI tools enhance developer productivity, enable non-developers to create software, and potentially redefine the role of professional software developers.

For companies, this transformation offers opportunities to build more with less, explore new development approaches, and potentially shift resources from development to other bottlenecks like distribution and sales.

For individual developers, the path forward involves embracing AI augmentation, developing broader skill sets, and focusing on areas where human creativity, system design expertise, and business domain knowledge create the most value.

The software development profession isn't disappearing—it's evolving. Those who adapt to this new reality will likely thrive, while those who resist may find themselves increasingly left behind in a rapidly changing technological landscape.

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Sources: Horsefly Analytics, Indeed, Pragmatic Engineer