Is AI Killing The $1 Trillion SaaS Industry?

MARKETS

Is SaaS Dead?

Today, we are trying to answer a trillion-dollar question that has investors panicking: Is SaaS Dead?

A few weeks ago, an announcement sent shockwaves throughout an industry that, for two decades, felt untouchable and printed over a trillion dollars. Klarna, the “buy now, pay later” company, intends to substitute its Salesforce and Workday systems with in-house OpenAI developments.

What was thought impossible is now a reality; SaaS companies, enterprises with some of the highest customer retention rates worldwide, are at risk of becoming disposable because of AI, possibly becoming one of the first industries to succumb to its wrath.

But what are the signals this is happening? Are markets backing this idea? What will determine the survival or death of a given company? And do these threats also affect you as an employee or founder?

Today, we are learning about the recent AI breakthroughs that have spooked SaaS investors and are punishing hundred-billion-dollar companies, the accurate state of the market and its sinister future and, crucially, a simple guide for you to evaluate which companies will survive and which most probably won’t.

Concerning Signals

Few industries today are thought to be more exposed to AI than SaaS, companies that offer Software-as-a-Service through the cloud (the Internet), despite being some of the most successful companies in the past two decades.

But why have they been so successful? At first, it may seem hard to believe; SaaS’ appeal is obvious.

They offer industry-tailored workflows that allow you to streamline your internal processes. For instance, Salesforce will enable you to guide the entire sales lifecycle, from sourcing to account management, helping your sales reps focus on selling instead of bureaucracy.

They are also very convenient, as they usually offer a fixed price on a seat-based pricing system, billed monthly or annually. In simple terms, if you deem it necessary to provide access to ten sales reps in Salesforce, you’ll need to pay for ten licenses. Importantly, this means that the costs are predictable and, crucially, are Opex-based, preventing risky big purchases on long-term outcomes (capital expenditures or Capex).

However, despite all these advantages, many are proclaiming the industry's unavoidable death, as AI’s deflationary effect, combined with enterprises' tendency to leverage their data to train in-house AI models, might render their offerings useless.

And while this may seem like a multi-year prediction, this is taking place already. But how?

Klarna Leading the Way

As mentioned, Klarna has taken a step that has spooked many in the industry: it will completely dispose of its big OPEX SaaS costs and substitute them with OpenAI-based in-house developments.

Simply put, they are replacing third-party software partners they’ve had for years, like Salesforce or Workday, with Large Language Models (LLMs). With both companies' combined market values of $330 billion, this is an extreme sign of weakness regarding an industry that felt untouchable just a few years ago.

And while cases like Klarna are undoubtedly rare for now, is the writing on the wall by now?…

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