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How AI Is Disrupting The SaaS Landscape And Reshaping The Future
The rise of Artificial Intelligence (AI) has sent shockwaves through the traditional software landscape, particularly in the Subscription-based Software as a Service (SaaS) sector. As businesses adapt to this transformative technology, the legacy stack of SaaS systems is faced with disruption akin to the shift from boxed software to SaaS. Even the largest SaaS players like Salesforce, Workday, and NetSuite are under threat.
The traditional model of SaaS applications relying on per-seat revenue faces a radical risk with AI’s potential to eliminate employees needing such applications. Klarna’s move to replace Salesforce with AI-powered models serves as an early indicator of this trend. As better models emerge, it is expected that many companies will follow suit.
Productivity gains enabled by AI have the potential to wipe out entire suites of software, further compounding the effect. Workday recently reported layoffs of 8.5% due to AI integration. This integration alone may not be enough to secure long-term competitiveness in a rapidly shifting landscape.
The integration of AI into these companies’ product offerings presents both opportunities and existential challenges that should not be overlooked by investors. Bolting AI onto a legacy SaaS app will not be competitive against AI-first entrants due to the scale of this technology shift.
To illustrate the magnitude of this change, consider the 1980s, where typewriter companies were wiped out by PC word processors even though they had added features like LCD screens, memory, and spell checkers. Despite these additions, their business model was unable to adapt to the new PC-driven world, rendering them obsolete.
In a similar vein, AI is poised to become the biggest platform shift in history, as demonstrated by hyperscalers’ massive capital expenditures on Graphics Processing Units (GPUs) – the hardware that powers AI. Investors must factor in these new dynamics into their investment theses and re-evaluate traditional indicators of a SaaS startup’s or public enterprise’s potential.
In this new reality, enterprises will not pay the same for a headless SaaS seat with only AIs accessing legacy data trapped inside. Instead, it would be cheaper to export data out into an AI-first data layer and eliminate the legacy SaaS altogether. This shift threatens the very foundation upon which SaaS companies have built their business models.
For investors, this means a strategic rethink as the future cash flows – the bedrock of company valuations – are now clouded with uncertainty.
Source: http://www.forbes.com
