Even if AI dramatically lowers coding costs, it won't destroy established SaaS businesses. Technical expenses only account for 10-20% of revenue for major SaaS players. The other 80% is spent on marketing, events, and client service, creating an opportunity for significant margin expansion.

Atlassian's CEO argues against the death of per-seat pricing. He states that customers dislike the unpredictability of consumption models, and value-based models are too hard to measure accurately. This practical friction ensures simpler, predictable pricing will persist.

AI companies are selling large, seat-based contracts based on hype and experimental budgets, inflating current ARR. Investors are skeptical because, like early SaaS, customers will eventually demand usage-based or outcome-based pricing, challenging the long-term revenue stability of these startups.

While many SaaS vendors like Adobe and HubSpot are introducing token-based pricing for AI features, actual business adoption remains negligible at around half a percent of spend on those platforms. This signals that the predicted shift away from seat-based models is far from imminent.

The current downturn for public SaaS isn't a temporary correction; it's a permanent re-rating of their value. The market has realized that these companies are failing to convert massive AI investment into revenue growth. Their growth decline is now perceived as permanent, justifying lower valuation multiples compared to historical norms.

The threat to SaaS from AI isn't uniform. Foundational 'systems of record' like Salesforce are safe and being built upon with APIs. However, vertical SaaS tools (e.g., for surveys) are being replaced wholesale by custom AI-built solutions, justifying the concern over their declining growth and market caps.

The market narrative suggests AI will decimate SaaS companies. However, current earnings data reveals a different story. Major players like Salesforce, GitLab, Snowflake, and Datadog are still reporting strong double-digit revenue growth. This highlights a significant disconnect between speculative fear about AI replacing software and the present-day financial performance of these companies.

The initial explosion in AI spending was largely additive, not a replacement for existing budgets. Going forward, this will change. Companies will start substituting AI spend for traditional SaaS licenses and human capital as they rationalize operating expenses and seek higher ROI.

A 'tale of two cities' exists in SaaS. Traditional software budgets are frozen, with spending eaten by price hikes from incumbents. Simultaneously, new, separate AI budgets are creating massive opportunities, making the market feel dead for classic SaaS but booming for AI-native solutions.