Guys I have tried searching, asking AI and try to do research but seems like I can’t get an answer.
Why SAAS is being hated by investor at the moment? I want to get some perspective. The answer I get is AI will replace these roles. Another answer I get is with layoffs, there will be lesser seats for enterprise to pay for. Let me breakdown bothe the point and please see what I am missing out.
Before I start, let’s look at some examples I am talking about specifically.
Adobe, Salesforce, Microsoft, Servicenow
1. AI will replace the need for SAAS
I am not sure how exactly this affects the SAAS business. All these companies has spent billions to integrate their enterprise softwares with the products mentioned above (to a lesser extent Adobe). But, let’s say Claude comes up with their own CRM software (for example), what it will take for enterprise to switch from existing to this new product? Wouldn’t the switching cost so expensive? Claude needs to provide so much of value for enterprise for them to switch. Wouldn’t it be easier to integrate AI within the existing software and achieve similar efficiency or productivity? Salesforce already doing it, other companies as well for their softwares. Servicenow is so embedded in my enterprise softwares, that for them to switch to a new software, it will take years to implement and get used to. Might as well to use the existing ones with AI integration. When Google introduce their enterprise suites of Google Docs, Sheet etc, everyone thought MSFT is done for. But they are still doing well. So I don’t understand the fear.
2) Number of users might decrease with layoffs
This one I agree but these are short term layoffs. Long term, new companies will come in creating more seat for the software user.
Help me to understand the severity of the situation.
**Edit**: Based on what I gathered, I have some replies on common fear for SAAS which I have highlighted in comment. Let me put here so we can have further discussion.
1. Lesser license seat
I think the business model of licensing based on seat is no longer the future. I believe it will shift towards token based usage, as these SAAS start to integrate more AI into their softwares. The potential is there and I strongly believe that’s where the future will be. More token you use, more you will pay, which will correspond to the operating expense of the company. I also believe models will not the business model, the user interface will be, which these SAAS are in great positions to capitalise.
2. In house development reduce pricing power of SAAS
Yes, companies can develop their own softwares, but most likely this is not going to happen. Why? Because they need accountability if something goes wrong. Management needs assurance in terms data governance, safety, reliability etc. They might as well engage SAAS that can deploy at scale.
3. Claude/OpenAI can directly outcompete SAAS
That is very true if the it is B2C based, where the switching cost is low. But, for SAAS companies with most revenue coming from enterprises, it does not hold the same where switching cost can be high. Data migration from one software to another might not be that easy, especially for enterprise that has embedded the software throughout their ERP.
Someone commented that this post is just looking for confirmation bias despite so many post out there. This is not confirmation bias. I am looking for people out there who is really from technical or user perspective, coming out saying for example “yes, my company has terminated Adobe because we have switched to Gemini” or “My company is exploring to use other services than Service Now because of xxx”. Those kind of community feedback/information who works in and out with such softwares.