One recent message sent by a founder to his investor showcased a significant shift in the tech world. He was replacing his entire customer service team with Claude Code, an AI that can create and manage software independently. To Lex Zhao from One Way Ventures, this was a sign of a larger trend: companies like Salesforce are no longer the unquestionable choice for software solutions.
Zhao mentioned that thanks to coding agents, it’s now easier to create software than ever before. This is altering the age-old dilemma of whether to build software in-house or buy it from vendors. Abdul Abdirahman of F-Prime pointed out that the traditional pricing model for Software as a Service (SaaS)—charging per user—may not hold up as AI tools can perform tasks that once required many employees.
As AI tools like Claude Code and OpenAI’s Codex advance, they’re capable of replicating not just the main functionalities of SaaS products, but also the extra features that vendors sell for additional revenue. This means that customers now have more power. If they dislike a vendor’s pricing, they can easily create their own solution.
We saw this trend in late 2024 when Klarna decided to abandon Salesforce for its AI system. This decision sent ripples through public markets, causing the stock prices of major SaaS firms to tumble. In early February, a swift sell-off led to nearly $1 trillion lost in software stocks, and another billion followed soon after.
The term “SaaSpocalypse” has emerged among experts, referring to the fear of obsolescence in the SaaS market. However, some investors believe these fears are temporary. Aaron Holiday from 645 Ventures likened the situation to an old snake shedding its skin—a transformation, not an end.
The rapid evolution of AI tools, like Claude Code for cybersecurity, showcases the disruptive power of these technologies. Many SaaS companies had enjoyed high valuations, but the end of the zero-interest era means borrowing costs are rising, impacting potential growth.
Public investors typically estimate the future revenue of SaaS companies, but with AI emerging as a formidable competitor, their projections remain uncertain. Every new AI tool invokes concerns about the viability of established SaaS products. “It may be the first time in history that the value of software itself is being critically reassessed,” Abdirahman explained.
Amid this turmoil, AI-native startups are emerging, offering services in ways that traditional SaaS companies never imagined. These companies are reshaping the software landscape, making it easier and cheaper to build tech solutions. According to Yoni Rechtman from Slow Ventures, this is both good news for new startups and a significant challenge for established firms.
Interestingly, AI companies are experimenting with pricing models based on usage or outcomes, shifting away from traditional subscription fees. Sierra, a new venture by former Salesforce CEO Bret Taylor, has found success with an outcome-based pricing model, achieving $100 million in annual recurring revenue within just two years.
While cloud-based software like SaaS is often seen as long-lasting, the rise of AI presents a new challenge. Tech giants that used to dominate now face competition from agile newcomers. Investors are understandably anxious, drawing parallels to past software transitions.
Despite these concerns, the SaaS market is at a crossroads. The shift may lead to hybrid business models that blend traditional SaaS with innovative new solutions. What remains crucial is maintaining strong fundamentals: shareholder value, customer retention, and clear budgets.
In the end, the tech world is in a constant state of flux. Adjusting to these changes will determine which companies thrive and which fade into the background.
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