I talk to founders every day, and keep finding myself having the same conversation around SaaS, the pros and cons of the business model, and how AI changes the game
A little history: SaaS has been the hotness for the past decade, for a few reasons. When money was plentiful and funding was cheap, the math was clear: invest heavily upfront, build a technical moat, and once you find PMF the business scales near-infinitely. Prominent SaaS platforms are all the old tech darlings: Slack, Stripe, HubSpot... Name a tech company! Even OpenAI and Anthropic I'd throw in that bucket.
SaaS follows a "J-curve", meaning, it loses money upfront, then scales infinitely afterwards, in theory. VCs have poured billions of dollars into these businesses.
On the other end of the spectrum would be pure services: selling time for money. Examples would be a marketing agency, software development shop: things that scale linearly with cost. If I want to double my marketing agency, I'd need to double the staff.
Where we are now
Satya Nadella was famously misquoted saying "SaaS is Dead", what changed?
In my mind, a few main things:
Saturation of the market.
Back in 2015, "Uber for X" was a viable strategy - as the app ecosystem was relatively new and naive. If you launched a SaaS in a new vertical like design, hospitality, tax filing, you were met by an army of early adopters eager to try the new tech. In addition, the ubiquity of app stores allowed easy distribution to billions of customers.
Today, appetite for new software is at an all-time low. Any information worker will tell you: we have too many tools. Professionals need to juggle dozens of apps with confusing names on a daily basis in order to do their jobs, and it's a real cognitive burden.
So let's say you have a perfect SaaS: you've built the perfect tool for a customer and put it in front of them, excited to save them time/money/energy. And? They don't want it! They don't want to learn your new fancy software. These are no longer early adopters, we're dealing with the long-tail of businesses. There's a reason most home services companies are using 2000s era technology, despite being barraged with software salespeople all day long: they have enough on their plate, they don't want another SaaS.
But what do they want? Solutions: someone to do the job for them. That person could be leveraging SaaS on the backend, but these businesses have 0 appetite for doing the new work themselves.
But wait, I thought solutions work was unscalable?
AI enters the chat
I won't preach to the choir here, but the main thesis is this: AI enables solutions to scale. Operations, communication overhead, manual sales processes: this is all ripe for automation + AI. Not saying it's easy, but we've landed on the moon: what was once a fixed linear cost scaling has become a more attractive curve.
Here's an example of what I mean: let's say you start a business helping HVAC companies handle billing. You build the software, it works perfectly, but HVAC companies won't pick up the phone when you try to pitch it to them. Just another sales guy, right?
Now imagine you're an AI-enabled services firm. You have your SaaS, but you also have an amazing sales guy (NYU intern, probably) who is leveraging AI tools to scale himself. He calls HVAC firms and promises to personally clean up their bookkeeping. He speaks HVAC, knows their ticks, and shows up in person to make the sale.
I'd invest in the second business.
And not to mention, customers actually want it. They want a human they can call when their SaaS breaks. They want a business who actually cares about them, understands them, and has personnel dedicated to supporting them. That's simply not in the DNA of SaaS companies. But one SaaS + AI enabled solutions team can support a scalable number of customers. That's what's changed.
So SaaS is not dead. But maybe on the way out.
So when founders tell me about their fancy new SaaS, I tell them to consider services.