The threat to established SaaS companies is not just technological but also psychological. Simply adding AI features to an existing product like Photoshop may not be enough if AI creates entirely new workflows. Survival depends on 'human agency'—bold leadership willing to cannibalize existing products and fundamentally reimagine their business for an AI-centric world.
Related Insights
For established software companies with sluggish growth, the path forward is clear: find a way to become relevant in the age of AI. While they may not become the next Harvey, attaching to AI spend can boost growth from 15% to 25%, the difference between a viable public company and a sale to a private equity firm.
For incumbent software companies, surviving the AI era requires more than superficial changes. They must aggressively reimagine their core product with AI—not just add chatbots—and overhaul back-end operations to match the efficiency of AI-native firms. It's a fundamental "adapt or die" moment.
Ben Thompson's analysis suggests the era of siloed SaaS growth is over. With AI enabling infinite software creation, companies will be forced to attack adjacent business functions to grow. This shifts the market from collaborative expansion to a competitive battle for existing customer spend, with AI model providers as the key "arms dealers."
The most durable moat for enterprise software is established user workflows. The current AI platform shift is powerful because it actively drives new behaviors, creating a rare opportunity to displace incumbents. The core disruption isn't just the tech, but its ability to change how people work.
A single feature advantage is insufficient for an AI startup to displace a software giant like Salesforce. True disruption requires a fundamental shift across user interface (proactive agents vs. forms), data utilization (unstructured data), and business model (monetizing tasks vs. seats).
In the age of AI, 10-15 year old SaaS companies face an existential crisis. To stay relevant, they must be willing to make radical changes to culture and product, even if it threatens existing revenue. The alternative is becoming a legacy player as nimbler startups capture the market.
SaaS products like Salesforce won't be easily ripped out. The real danger is that new AI agents will operate across all SaaS tools, becoming the primary user interface and capturing the next wave of value. This relegates existing SaaS platforms to a lower, less valuable infrastructure layer.
To transition to AI, leaders must ruthlessly dismantle parts of their existing, money-making codebase that are not competitively differentiating or slow down AI development. This requires overcoming the team's justifiable pride and emotional attachment to legacy systems they built.
To succeed in the AI era, SaaS companies cannot just add AI features. They must undergo a 'brutal' transformation, changing everything from their org chart and GTM strategy to their core metrics and pricing model. This is a non-negotiable, foundational shift.
Sierra CEO Bret Taylor argues that transitioning from per-seat software licensing to value-based AI agents is a business model disruption, not just a technological one. Public companies struggle to navigate this shift as it creates a 'trough of despair' in quarterly earnings, threatening their core revenue before the new model matures.
