AI enables "software does labor" business models in industries previously deemed too small for specialized software, like dental offices or trial law. By replacing or augmenting specific labor tasks, startups can justify high-value contracts in markets that historically wouldn't pay for traditional SaaS tools.

The rise of AI services companies like Invisible and Palantir, which build custom on-prem solutions, marks a reversal of the standardized cloud SaaS trend. Enterprises now prioritize proprietary, custom AI applications to gain a competitive edge.

The barrier to creating software is collapsing. Non-coders can now build sophisticated, personalized applications for specific workflows in under an hour. This points to a future where individuals and teams create their own disposable, custom tools, replacing subscriptions to numerous niche SaaS products.

For decades, buying generalized SaaS was more efficient than building custom software. AI coding agents reverse this. Now, companies can build hyper-specific, more effective tools internally for less cost than a bloated SaaS subscription, because they only need to solve their unique problem.

The current moment is ripe for building new horizontal software giants due to three converging paradigm shifts: a move to outcome-based pricing, AI completing end-to-end tasks as the new unit of value, and a shift from structured schemas to dynamic, unstructured data models.

Point-solution SaaS products are at a massive disadvantage in the age of AI because they lack the broad, integrated dataset needed to power effective features. Bundled platforms that 'own the mine' of data are best positioned to win, as AI can perform magic when it has access to a rich, semantic data layer.

Value in the AI stack will concentrate at the infrastructure layer (e.g., chips) and the horizontal application layer. The "middle layer" of vertical SaaS companies, whose value is primarily encoded business logic, is at risk of being commoditized by powerful, general AI agents.

Traditional SaaS was built for siloed human departments (e.g., sales, marketing, support). AI enables a single agent to manage the entire customer journey, forcing these distinct software categories to converge into unified platforms.

The fundamental shift from AI isn't about replacing foundational model companies like OpenAI. Instead, AI creates a new technological substrate—productized intelligence—that will engender an entirely new breed of software companies, marking the end of the traditional SaaS playbook.