Let's talk about SaaS, baby
Wall Street has spent the last two weeks in a full-blown panic over SaaS, with public SaaS stocks shedding hundreds of billions of dollars in value. Investors, behaving with their usual pack mentality, have suddenly decided that AI represents an existential threat to the entire SaaS model. It’s not entirely clear why this fear is peaking right now, but let’s be clear about one thing: SaaS isn’t going anywhere.
And it’s not just investors. Others, whether acting out of fear or opportunism, are piling on too. Exhibit A: ServiceNow CEO Bill McDermott tried to distance his company from the SaaS label last week, perhaps sensing it wasn’t a popular place to be.
McDermott was quoted saying, “We don’t live in the SaaS neighborhood.” Excuse me, sir, but you most certainly do. Those words came from the long-time SaaS executive after his company reported a pretty nice quarter, only to be met with a rude reception from Wall Street anyway. It was another sign that people were jumping on the "SaaS is doomed" bandwagon.
SaaS stands for Software as a Service, a way of delivering software via the cloud instead of on-prem in a private data center. Just about every company that sells software these days, with a few exceptions, is based on this model. For the CEO at one of the premier enterprise SaaS companies to suggest his company is something else borders on absurd.
Why do some people think it's doomed and why is McDermott trying to distance his company from the term? AI coding, of course. The argument goes, if you can code anything, you can build your own enterprise software, and that spells doom for the companies currently building it. But the thing is, while AI coding tools are a huge advance, they aren't likely to take out a whole category of technology overnight, especially in large enterprise organizations.
The complexity problem yet again
I don't want to minimize the power of AI coding because it appears to provide a real efficiency lift, but I do think it's a bit much to suggest that every company is now going to build their own bespoke enterprise software without putting their core businesses at risk.
Part of the problem is understanding just how complex enterprise software really is: how many systems it must connect to, how much technical debt has piled up over time, and the fact that IT fundamentals still apply.
As my former colleague and boldstart founder Ed Sim wrote last year, agents still have to solve the last-mile problems, the hard ones you can't simply gloss over like “security, privacy, compliance, integrations, determinism and repeatability, accuracy, memory, cost, orchestrating swarms of agents, and even more security.” If enterprise software companies like ServiceNow are struggling to solve all of those problems, it's a stretch to think anyone can just build it themselves and put companies like ServiceNow and Salesforce out of business.
SaaS's reckoning
But just because enterprise SaaS companies aren’t likely to be replaced anytime soon doesn’t mean they shouldn’t take a hard look at why customers are increasingly open to considering building their own alternatives.
As Constellation Research founder and principal analyst Ray Wang wrote in a Monday Musings column back in 2024, companies were already getting fed up with fat SaaS bills. "Recent conversations with more than 100 CXOs in the Constellation Executive Network indicate that their satisfaction with technology vendors has reached an all-time low," Wang wrote. He cited an example of a CRM vendor that was trying to push a $20 million increase when the company was trying to cut their costs by that very same amount.
Sales teams are gonna sell, sell, sell, but they can't be tone-deaf, or customers will search harder for ways to shake them off. That's even more true today as companies push agentic AI and the pricing squeeze Wang described only gets worse. At some point, someone’s gotta pay those big infrastructure bills to power the AI.
No, SaaS isn’t dying, no matter what Wall Street investors may think, but what could be happening instead is a long-overdue reset on pricing, value and expectations. Enterprises may be frustrated with their software vendors, but that frustration doesn’t mean they can magically turn their businesses into enterprise software companies overnight. And no amount of AI coding changes that.
~Ron
