Get your free personalized podcast brief
We scan new podcasts and send you the top 5 insights daily.
The "SaaSpocalypse" isn't indiscriminate. It specifically targets companies like Chegg, whose primary function of answering homework questions is now a free, basic feature of models like ChatGPT. This defines a clear archetype of a vulnerable business model, in contrast to SaaS with deeper, more complex moats.
Related Insights
Large AI labs are actively building capabilities that will directly compete with and subsume the functions of specialized SaaS companies. As Sam Altman warned, if a SaaS product doesn't improve with each new model release, the generally capable base model will eventually replicate its features, making it obsolete.
Anthropic's targeted AI releases for legal, cybersecurity, and COBOL are not just competing with SaaS companies; they are rendering their business models obsolete. This "SaaSpocalypse" has already wiped out over $1 trillion in market value.
A partner at Google's AI-focused fund, Gradient Ventures, has adopted a "short SaaS" investment thesis. The rationale is that AI makes building software so easy that most traditional SaaS companies no longer have a defensible moat. This puts the entire business model in jeopardy, making it an unattractive area for new venture investment.
SaaS tools whose primary value is aggregating and simplifying access to public information are vulnerable to being replaced by LLMs, which excel at this exact task. Defensible moats belong to platforms with proprietary data, deep workflow integration, and high regulatory barriers, not simple information convenience.
AI is making core software functionality nearly free, creating an existential crisis for traditional SaaS companies. The old model of 90%+ gross margins is disappearing. The future will be dominated by a few large AI players with lower margins, alongside a strategic shift towards monetizing high-value services.
Investor Joe Lonsdale offers a heuristic for the 'SaaSpocalypse': low-end SaaS, particularly PE-backed companies that prioritized sales over deep tech, is in trouble. However, complex software that required over $100 million in engineering to build has a significant moat and is defensible against AI-driven disruption for the foreseeable future.
The launch of ChatGPT was a mass extinction event for a subset of SaaS. Roughly 10% of companies that solved problems now easily handled by large models became obsolete overnight. The survivors are either insulated, able to add AI as a feature, or are now threatened and must pivot to avoid the same fate.
SaaS businesses thrived by organizing newly abundant information. AI now makes the creation and organization of software itself abundant, driving its cost to zero. This commoditization of the core value proposition of many SaaS companies makes them a poor venture investment category going forward.
Software moats are diminishing rapidly. In the next 12-24 months, foundation models will gain the capability to build entire SaaS applications, like cloning Slack, from a simple prompt. This will severely challenge software companies that lack strong network effects, as their core product can be replicated with ease.
The existential threat from large language models is greatest for apps that are essentially single-feature utilities (e.g., a keyword recommender). Complex SaaS products that solve a multifaceted "job to be done," like a CRM or error monitoring tool, are far less likely to be fully replaced.
