Wedoany.com Report on Mar 2nd, The rapid development of AI technology is posing significant challenges to the SaaS (Software as a Service) business model. Traditionally, SaaS companies typically adopted per-seat pricing, charging based on the number of employees using the service. Abdul Abdirahman, an investor at venture capital firm F-Prime, told TechCrunch: "For a long time, SaaS has been considered one of the most attractive business models because it has highly predictable recurring revenue, tremendous scalability, and 70-90% gross margins." However, when AI agents can replace human tasks, the per-seat pricing model begins to fail. Customers find it easier to build their own alternatives, putting pressure on SaaS vendors' contract prices.
At the end of 2024, Klarna abandoned Salesforce's CRM product in favor of its own in-house AI system, intensifying market concerns. Stock prices of SaaS giants like Salesforce and Workday declined, and the market capitalization of software and service stocks evaporated by nearly $1 trillion in early February. Experts call this the SaaS apocalypse storm, stemming from AI tools like Claude Code and OpenAI's Codex being able to replicate core SaaS functionalities, and even add-on tools, shaking the foundation of traditional pricing. Abdirahman stated: "This may be the first time in history that the terminal value of software has been fundamentally questioned, thereby substantially reshaping how future SaaS companies will be underwritten." Public market investors price SaaS companies by estimating future revenue, but AI advancements increase uncertainty about future usage, leading to volatility in SaaS stocks.
AI-native startups are rising at record speeds, redefining software companies. Yoni Rechtman, a partner at Slow Ventures, told TechCrunch that building software is now cheaper and easier to replicate, posing a threat to incumbents. AI companies are exploring new pricing models, such as consumption-based or outcome-based pricing. Former Salesforce CEO Bret Taylor's AI startup Sierra adopts outcome-based pricing, achieving $100 million in annual recurring revenue in less than two years. However, the market lacks sufficient evidence to prove the sustainability of these new business models. While SaaS vendors are cloud-based, they still face AI competition.
Investor nervousness stems from AI-native companies adapting faster. Aaron Holiday, Managing Partner at 645 Ventures, told TechCrunch: "This is not the end of SaaS." Instead, it could be the beginning of a transformation. Public market SaaS companies are struggling. A Crunchbase report shows no venture-backed SaaS companies have filed for IPOs, and large private companies like Canva and Rippling are under pressure. Holiday noted that some companies are also finding it difficult to raise funds in the private market for the same reasons as in the public market. Rechtman added: "When market sentiment could cause companies to spiral downwards, no one wants to bear the volatility of the public markets." He expects such companies to remain private for longer.
Meanwhile, the public market awaits IPOs from AI-native companies like OpenAI and Anthropic, which may happen later this year. Ultimately, old and new technologies may converge. Holiday emphasized that enterprises need software for compliance, auditing, and workflows. Lasting value is based on fundamentals, not hype. The SaaS business model faces restructuring under the impact of AI, but core demand remains. Market adjustments may promote industry evolution.
