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.

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.

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.

Subscription fees and advertising revenue are insufficient to justify the massive valuations of leading AI labs like OpenAI. The only business model that provides the necessary returns is the replacement of the entire $50 trillion human labor economy. This core incentive means their goal is necessarily replacement, not augmentation.

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.

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.