StartUp / Ai Startups
Track AI startups, new venture creation, founder strategy, product direction and investment signals across the fast-moving artificial intelligence sector.
Is SaaS Dead? | The Brainstorm EP 119
Topic
Current State of SaaS and AI Impact
Key insights
- Questions around growth, multiples collapsing, layoffs everywhere
- Uncertainty has risen dramatically about the sustainability of future cash flows for most software companies
- AI models are progressing and getting cheaper, enhancing knowledge worker productivity
- The space is getting re-rated generally with a lower multiple due to rising uncertainty
- Entry to create software is low, allowing for quick feature copying
- Nimble teams that ship fast will outperform those relying on customer renewals
Perspectives
Discussion on SaaS and AI impact highlights differing views on adaptation and market dynamics.
Proponents of SaaS Adaptation
- Argues that SaaS companies must adapt to survive amidst rising uncertainty
- Highlights the potential for AI to enhance software development and productivity
- Claims that new AI-native SaaS applications are experiencing significant growth
- Proposes that companies need to shift from seat-based to engagement-based pricing models
Skeptics of SaaS Viability
- Questions the long-term sustainability of traditional SaaS business models
- Denies that all SaaS companies will survive the current market pressures
- Rejects the notion that existing SaaS firms can easily transition to AI-driven models
- Accuses incumbents of failing to innovate and adapt to changing market dynamics
- Warns that the market is undervaluing the durability of established SaaS companies
Neutral / Shared
- Notes that the SaaS market is under pressure but not all companies are dead
- Observes that major tech firms are recognizing the need to adapt to AI advancements
- Mentions the potential for significant opportunities in the AI software market
Metrics
payback_period
18 years
current payback period for owning software businesses
A longer payback period indicates increased risk for investors in the software sector.
it's gone from kind of year by year now where it had 12 year payback period last year. This time, 18 year payback period
revenue_multiple
3.6
current forward revenue multiple for median SaaS companies
A lower revenue multiple reflects market re-rating and increased uncertainty.
you can buy that today at a cheaper, forward revenue multiple than you've ever been able to, at least since 2014, 3.6
growth
100% plus year on year
Palantir's business growth in the US
Indicates strong demand for their unique data contextualization services.
their business is growing in the US 100% plus year on year in accelerating.
growth
small fraction of Office 365 subscriptions
Microsoft's co-pilot subscriptions
Highlights the limited impact of new features on overall growth.
co-pilot subscriptions are a small fraction of Office 365 subscriptions.
annual_recurring_revenue
1.4 billion USD
Salesforce's agent force and data products
Indicates strong revenue growth potential in a competitive market.
their agent force and data products are at 1.4 billion in ARR growing over 100% year-on-year.
Key entities
Timeline highlights
00:00–05:00
The discussion centers on the current state and future of SaaS companies amidst rising uncertainty and changing market dynamics. Key points include the impact of AI on software development, the compression of revenue multiples, and the increasing competitiveness of the sector.
- Questions around growth, multiples collapsing, layoffs everywhere
- Uncertainty has risen dramatically about the sustainability of future cash flows for most software companies
- AI models are progressing and getting cheaper, enhancing knowledge worker productivity
- The space is getting re-rated generally with a lower multiple due to rising uncertainty
- Entry to create software is low, allowing for quick feature copying
- Nimble teams that ship fast will outperform those relying on customer renewals
05:00–10:00
SaaS companies are experiencing slower growth compared to those in infrastructure software and platform services, with AI expected to drive growth in new AI-native SaaS applications. Incumbent SaaS firms are struggling to translate new features into significant revenue increases, while venture-funded AI companies are seeing unprecedented revenue growth.
- Companies building SaaS applications are growing at slower rates compared to those building infrastructure software and platform as a service offerings
- AI is likely to accelerate growth in new AI native SaaS apps
- Companies that apply digital intelligence in unique ways are expected to stand out and grow
- Palantir contextualizes enterprise data and charges based on delivering business productivity
- Most existing SaaS companies are decelerating revenue due to reliance on seat-based pricing
- Venture funded AI companies are experiencing unprecedented revenue growth
10:00–15:00
Salesforce's agent force and data products are experiencing significant growth, with an annual recurring revenue of 1.4 billion and over 100% year-on-year growth. The market currently views SaaS companies as under pressure, raising questions about their long-term durability and adaptability in a rapidly changing environment.
- Walmart has adapted to e-commerce and is thriving
- Salesforces agent force and data products are at 1.4 billion in ARR growing over 100% year-on-year
- Salesforces agent force is about 500 million in run rate
- The market is not treating SaaS companies as durable right now
- OpenAI and Anthropic reportedly use Salesforce and Slack internally
- Salesforce is expected to have more customers in five years
15:00–20:00
The discussion focuses on the challenges SaaS companies face in transitioning from seat-based to engagement-based business models. It highlights the potential for easier top-line growth through value-based models and the implications of the innovator's dilemma in the context of AI advancements.
- Top line growth may be easier than expected
- Business model mismatch is a challenge when transitioning from seat-based to engagement-based charging
- Companies historically faced choppy quarters transitioning from outright software sales to subscription-based models
- The need for companies to shift to value-based models is emphasized
- The innovators dilemma may be easier to solve due to lower costs of experimentation
- Companies may not need to deploy human resources to disrupt their own business
20:00–25:00
The discussion centers on the significant opportunities presented by AI, projected to be a $7 trillion software market by 2030, and the challenges faced by major automakers in transitioning from electric vehicles to autonomous technology. It also highlights the lack of innovative neighborhood electric vehicles in the market and the rise of AI-generated content.
- The more well-resourced companies decided not to pursue certain paths
- Googles response is to treat AI seriously and not rely on bureaucracy
- Founders having control can steer companies aggressively in new directions
- AI is seen as a $7 trillion software opportunity by 2030
- Major automakers are giving up on electric vehicles at a time of transition to autonomous technology
- There is a lack of compelling tech-forward neighborhood electric vehicles in the market
25:00–30:00
The discussion addresses the safety concerns associated with cars and the potential impact of Robotaxi technology on urban environments. It also examines the recent challenges faced by digital asset treasury companies in the cryptocurrency market.
- The problem with cars is that they dont survive in dangerous situations, similar to a prisoners dilemma regarding car size
- There is a concern about the safety of families due to cars, pedestrians, and bikes
- The idea of Robotaxi infiltration could significantly change urban environments and improve safety
- Bitcoin and crypto had a rough week, with comparisons made to 1920s investment trusts
- Digital asset treasury companies are seen as a temporary solution for investing in crypto assets
- There are tax advantages to digital asset treasury companies in some regions