The Software as a Service (SaaS) industry has faced volatility this year, with publicly traded companies experiencing poor performance in Q2 and rebounding in Q3. Amidst concerns about secular disruption from AI, it’s natural to wonder if SaaS is due for a shake-up.
One concern is that AI-enabled code generation may lead software vendors to compete on price, eroding their ability to differentiate based on product quality. Another issue is the potential shift away from graphical user interfaces towards voice or AR/VR interfaces. Additionally, budget scrutiny and a desire to bundle purchasing from fewer vendors may change the buyer’s perspective.
Despite these concerns, it’s essential to put things into perspective. SaaS is still dwarfed by other industries like healthcare, financial services, manufacturing, real estate, retail, and transportation in terms of size. Looking ahead, GDP, IT, software, and SaaS spend are all projected to grow.
The key question is determining which SaaS players are well-positioned to benefit from this growth. With competition driving commoditization, some areas may see prices decrease and profit pools erode. However, AI should drive increased utility for software buyers and end-users in other areas.
AI has the potential to increase the value of SaaS by augmenting or replacing human-led tasks. This could lead to larger contract sizes for software companies that can deliver against the promise of humans and technology working seamlessly together.
Customer support is an area where AI can make a significant impact, as seen with European buy-now-pay-later leader Klarna’s implementation of AI assistants. These assistants can resolve issues more quickly than before implementation, accomplish the work of 700 agents, and save the organization millions in 2024.
The concept of humans and technology working together has long captured widespread interest. It may soon become a reality.
Less, but better will continue to drive the SaaS industry forward. In most other periods, the industry has been consolidated with a small number of large winners that grow faster for longer and generate impressive underlying unit economics. This is the natural status quo for software development.
Source: https://thenewstack.io/saas-is-dead-long-live-saas/