Before replacing human workers, AI expands the total addressable market by making services economically viable for previously unserved segments. For instance, Intercom customers now offer AI support to their free users, something they could never afford with human agents.

The new generation of AI automates workflows, acting as "teammates" for employees. This creates entirely new, greenfield markets focused on productivity gains for every individual, representing a TAM potentially 10x larger than the previous SaaS era, which focused on replacing existing systems of record.

VCs have traditionally ignored the massive $16T services sector due to its low margins. AI automation can fundamentally change this by eliminating repetitive tasks, allowing these companies to achieve margin profiles similar to software businesses, thus making the sector newly viable for venture investment.

The true market opportunity for AI is not merely replacing existing software but automating human labor. This reframes the total addressable market (TAM) from the ~$400 billion global software industry to the $13 trillion US-only labor market, representing a thirty-fold increase in potential value.

While AI can improve existing software categories, the most significant opportunity lies in creating new applications that automate tasks previously performed by humans. This 'software eating labor' market is substantially larger than the traditional SaaS market, representing a massive greenfield opportunity for startups.

Enterprise executives are most excited about AI agents' ability to accelerate a company's most valuable employees by replacing the "hard to manage and motivate human cogs" that create organizational drag and massive coordination costs, thereby boosting top-line growth.

Countering the idea of a zero-sum SaaS market, Box CEO Aaron Levie argues that AI agents create net-new value. By performing complex knowledge work on existing data (like analyzing contracts), agents allow software platforms to capture budget previously allocated to human labor, thus expanding the total addressable market.

Elad Gil argues that the total addressable market for AI companies is not limited to traditional seat-based software pricing. Instead, it encompasses the multi-trillion dollar human labor market that AI can augment or automate.

The massive investment in AI seems disproportionate to the software market's size. However, its true potential is in automating and augmenting the services industry, which is 25 times larger than software, thus justifying the spend.