Industries with historically low software adoption (like trial law or dentistry) are now viable markets. Instead of selling a tool, AI startups are selling an outcome—the automation of a specific labor role. This shifts the value proposition from a software expense to a direct labor cost replacement.

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.

Sequoia Capital highlights that the next trillion-dollar companies will sell automated services ("autopilots"), not just software tools ("copilots"). They are pursuing the massive total addressable market of human labor, which is ten times larger than the entire software market.

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.

Unlike SaaS which sells to limited software budgets (e.g., 1% of revenue), vertical AI agents automate core business functions. This allows them to tap into much larger operational and labor budgets. Companies can capture 4-10% of a customer's total spend by replacing expensive human-led tasks like customer support.

AI tools aren't just making employees more efficient; they are replacing human labor. This allows software companies to move from cheap per-seat pricing to a new model based on outcomes, like charging per support ticket resolved, capturing a much larger share of the value.

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.