2025 Theme #1: AI Puts SAAS Models Under Pressure
For business strategists and investors, 2025 will be another year of transition for the SAAS model and volatility creates opportunities
Note: I’ve got a handful of themes that will create some structure to what I write about here in 2025. I’ll be looking at these themes from the perspective of business strategists, how it might create business, investment or financial opportunities. Today, I’m writing about a wave of change in software that will impact almost all brand builders.
We all know AI is putting pressure (either real or perceived) on, well, just about everything related to just about every business. Sure, there’s lots of hype and hand waving around the LLM’s and generative stuff, and it’s very clear that user behavior is changing as adoption ramps up fast. However, deep below the surface, where the boring stuff happens at the infrastructure level, the real changes are underway.
Disruption doesn’t happen with a bang, it’s like that Hemingway line: Slowly, then all at once.
It’s slow-ish now.
One of the frontiers of real change is in the SAAS marketplace, which means most workers in corporate jobs will be seeing rapid change in their tools and applications. It’s a business market that’s significantly bigger than we probably imagined, even though we know the major, established vendors. The rapid changes in the tooling landscape will impact the 401ks and IRAs of those workers lucky enough to have them.
Pressure on established SAAS companies is coming from three sides as AI finds traction:
The competitive marketplace - There’s literally an explosion of new products and platforms coming online. It’s a little overwhelming as gushers of VC money move to startups applying AI to old marketing (and martech) issues. AI Native apps offer speed, scaleability and at times, a functional advantage and the vendors are pursuing profitable niches. Adobe, Hubspot, Salesforce aren’t going away, but the newcomers are pursuing disruptive innovation from “below”.
“Buy” side - Buyers of software are raising their expectations, and seeking faster integration of new AI driven features. They expect established software platforms to have the same functionality as the new-breed, AI first upstarts. Buyers are also using AI-driven tools in their review and selection process as a way to get smarter/faster at understanding the landscape and evaluating options. The knowledge imbalance will tip from sales-driven models (where sales-people had the power) to buyer-in-control (because buyers will know as much as the sales teams.
The “Sell” side - SAAS companies who lean hard on AI are having to radically change their thinking about three critical things: 1) Their GTM efforts and how they find and aquire customers when buyers are empowered by AI 2) Pricing strategies and the relatively clear financial models that were based on per-seat usage and features and 3) Staff investments and whether they can really outcompete on tech. These three factors will put pressure on a pretty well understood, highly profitable business model.
Considerations for Marketers
If you work with SAAS companies or use their software, buckle up for a pretty busy couple years (maybe 10?). The pace of change will pick up in 2025 and you’ll have to be on your toes as you re-evaluate your current stack and consider renovations to your “tech” house.
The good news: You’ll have more tools to help you do smarter work. At the same time, you’ll be able to seek real efficiencies once you’ve figured out how best to use the tools.
The bad news: Your job will get harder before it gets easier. Too much hype, too much vaporware, false promises, etc. And, changing norms around quality (how important to customers is a quality UX today? Does content quality matter anymore?), integrity (does it matter if our ai driven content contains mistakes? ) and how your your team works together (or not).
Plus, it’s all changing SOOOO fast. Remember prompt engineering? That hardly matters anymore. As soon as you add a new tool, it gets obsoleted in a month or two.
Unpopular opinion: Be a slow adopter. Don’t fall for the idea that there’s a “first mover” advantage here. Ask an old-timer about Lotus 123 and how the “first mover” thing worked out in the long run. Focus on your most valuable KPIs, drive the shit out of them. Double down on what you know is working. Then, you pick up some experimentation after you’ve made the rest of your numbers.
Consideration of 401K and IRA Owners
As someone that has been buying software equities for years (HUB, KVO, SHOP, PAYC, ADBE, DDOG, CRWD, SNOW, CRM, INTU and others) I’m worried about the stability of the fundamentals of those businesses. And, finally, I also see it as a golden time to invest if you’re young; there will be a couple trillion dollar companies emerging over the next 5 years.
On the “bear” side, 2024 saw a major theme emerge: The purported death of SAAS. Now, some of this is a desire by analysts to jump the gun and plant a flag for their POV. But, the ideas are pretty persuasive, overall. Here’s a couple articles to give you a sense of the concern.
Chris Paik’s viral X post - The End of Software
Jamin Ball - Is Seat Based Pricing Dead?
Aki Ranin - The Death of SAAS
Chris Selland at CIO.com - Is SAAS Dead?
Janelle Teng - SAAS: Have reports of my death been greatly exaggerated?
On the bull side, it’s worth saying again if only to remind ourselves, there’s a revolution happening. Just like the ones we’ve all lived through for the last 30 years, including but not limited to:
Desktop to web
Web to mobile
Mobile to social
Owned software to SAAS
Self-hosted to cloud
So, the question for investors is going to be: which established software companies will come out ahead? Look at this list of companies that Bessemer is tracking, and which do you think will make it through this era and come out ahead? What are you selling?
Note: This isn’t financial advice. It’s better to buy the index or ETF and let it roll vs. trying to pick individual shares, tbh. Talk to your advisor, first, right?
So, for the 2025, I will be watching and filtering the news through the lens of one of my themes: Seeking opportunities as the SAAS / Cloud model evolves fast.