Few debates are as perplexing as the future of SaaS in an AI-driven world. Will AI be a disruptor or will SaaS adapt, change its game, and flourish?
Among the many AI presentations at SaaStr and SaasBoomi, the SaaS community events, one stood out. The founder of Ema, an AI employee company, said that SaaS will be dead with AI agents taking over the workplace and getting things done without having to navigate applications.
But there are naysayers.
“SaaS isn’t dying. It’s adapting, evolving, and positioning itself for the next era of innovation. Much like the humans evolving to leverage AI, SaaS too will evolve, transforming the way we work, interact, and grow,” said Deepak Anchala, the founder of Slintel, a 6sense company and also a GSF incubated/portfolio startup that gave an excellent exit.
Anchala, who’s about to launch another venture to redefine SaaS, believes that any SaaS company that fails to fundamentally rethink its workflows in an AI-first world and adapt accordingly will likely face extinction in the future.
Remember when Apple launched the App Store? It changed how we use apps, pushing companies to move from web-based apps to mobile-friendly ones. It was a big shift in how we interact with technology.
Now, we’re at the start of a similar change, driven by AI.
Will it Come Crashing Down?
However, as software gets more commoditised in the AI era, speculation has grown about the future of SaaS.
For the past two decades, we’ve praised the SaaS model for its stickiness and easy adoption. Pay-per-use lowers the entry barriers, reduces risk, and provides ongoing access to advanced features. Then AI arrived, and in some ways, turned the industry on its head, threatening the very existence of SaaS and all things it brings.
In fact, some argue that SaaS and enterprise software providers play an even more crucial role in the tech ecosystem today. That said, SaaS companies simply adding AI features to their existing software and charging extra fees are more exposed to risk than they’ve been in years.
Where Does it Go from Here?
Sure enough, SaaS and enterprise software will remain relevant but not like what they used to be.
In the future, there may be abstractions that look like what we see with OpenAI and other companies’ large language models and it may include multimodal interfaces tools that can help in reasoning.
For instance, a CEO might come across a tool that offers a proactive dashboard of key metrics, a reasoning engine for next-best actions, and a language model that pulls real-time data from various systems. Generative AI can also provide visual insights without needing to open specific apps.
The possibilities could be many — customer data, trends, HR insights, hiring recommendations, supply chain risks, vulnerabilities, and various financial reports — all just a request away.
SaaS is Far From Dead
The whole viability of SaaS discussion gathered pace with the Salesforce saga and an Upekkha report predicting struggles for SaaS startups in 2024. As Salesforce’s growth slowed down, it no longer excited the investors, and missing its earnings guidance for the first time in 73 quarters intensified concerns.
Workday, too, saw a significant drop, with its shares falling over 15% last week.
Thiyagarajan Maruthavanan, a partner at Upekkha, stated succinctly: “Is SaaS dead? It depends on who you ask.” He noted that investors may quickly agree, as their incentive lies in highlighting outliers and labelling them as trends. For founders of SaaS companies, the focus should be on adapting to market shifts and interpreting the signals within those trends.
While some companies are attempting to develop in-house AI capabilities, many are finding this approach to be costly and complex. As a result, there remains a substantial market for specialised SaaS applications that offer AI-enhanced functionalities.
Agentic AI and What it Means
As SaaS evolves in the AI era, agentic AI will handle high-volume tasks, becoming more efficient and precise in its deterministic functions. The limitations of process automation will diminish as agents utilise generative models, neural networks, reinforcement learning, and other advancements.
It’s an incredibly exciting time and an inflection point.
The end of SaaS and other enterprise software hasn’t arrived, but the way we buy and consume software is set to change.
Software giants Microsoft Corp, Salesforce, Oracle Corp, and others will need to aggressively transform the consumption layer so businesses can extract more value from their software investments and do so in a way that aligns with the capabilities of GenAI.
It won’t be easy. Data fabric, compliance, security, and governance are difficult problems to solve. But this is an opportunity for the large installed bases of current software leaders to transform and become more user-friendly.
Safe to say, SaaS isn’t dead; it’s simply evolving – dramatically.
Major business model changes like what we saw from Salesforce chief executive Marc Benioff at Dreamforce, where it debuted Agentforce, is indicative of where it and others are headed.
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