Tech giants like Google and Microsoft are spending billions on AI not just for ROI, but because failing to do so means being locked out of future leadership. The motivation is to maintain their 'Mag 7' status, which is an existential necessity rather than a purely economic calculation.

The primary economic incentive driving AI development is not replacing software, but automating the vastly larger human labor market. This includes high-skill jobs like accountants, lawyers, and auditors, representing a multi-trillion dollar opportunity that dwarfs the SaaS industry and dictates where investment will flow.

Companies like Sierra can't justify a 100x ARR valuation by targeting the existing software market (e.g., $8B Service Cloud). The bet is that they will capture a significant portion of the much larger human labor market ($200B+ for support agents). This represents a fundamental transition of spend from human capital to software.

The economic incentive for VCs funding AI is replacing human labor, a $13 trillion market in the US alone. This dwarfs the $300 billion SaaS market, revealing the ultimate goal is automating knowledge work, not just building software.

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.

Forget what executives say publicly. The massive capital allocation for AI data centers is the real evidence of impending job displacement. This level of investment only makes sense if companies expect significant cost savings from automating human labor, making capital the truest indicator of intent.

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.