One day not long ago, a founder texted his investor with an update. He was replacing his entire customer service team with Claude Code, an AI tool that can write and deploy software on its own. To Lex Zhao, an investor at One Way Ventures, the message indicated something bigger. It was the moment when companies like Salesforce stopped being the automatic default.
Zhao explained that the barriers to entry for creating software are so low now thanks to coding agents that the build versus buy decision is shifting toward build in many cases. This shift is only part of the problem. The whole idea of using AI agents instead of people to perform work throws the SaaS business model itself into question. SaaS companies currently price their software per seat, meaning by how many employees log in to use it.
Abdul Abdirahman, an investor at F-Prime, noted that SaaS has long been regarded as one of the most attractive business models due to its highly predictable recurring revenue, immense scalability, and high gross margins. However, when one or a handful of AI agents can do that work, that per-seat model starts to break down.
The rapid pace of AI development also means that new tools can replicate not just the core functions of SaaS products but also the add-on tools a vendor would sell to grow revenue. On top of that, customers now have the ultimate contract negotiation tool. If they do not like a SaaS vendor’s prices, they can more easily than ever build their own alternative. Even if they do not take the build route, this creates downward pressure on contract prices during renewals.
We saw this as early as late 2024, when Klarna announced it had ditched Salesforce’s flagship CRM product in favor of its own homegrown AI system. The realization that a growing number of other companies can do the same is spooking public markets. The stock prices of SaaS giants like Salesforce and Workday have been sliding. In early February, an investor sell-off wiped nearly a trillion dollars in market value from software and services stocks, followed by another billion later in the month.
Experts are calling it the SaaSpocalypse, with one analyst dubbing it FOBO investing, or fear of becoming obsolete. Yet the venture investors spoken with believe such fears are only temporary. This is not the death of SaaS, but rather the beginning of an old snake shedding its skin.
The public market pattern is best illustrated through Anthropic’s recent product launches. The company released Claude Code for cybersecurity, and related stocks dropped. It released legal tools, and the stock price of a major software ETF also dropped. In some ways, this was expected, as SaaS companies had long been overvalued. It also does not help that these companies did the bulk of their growing during the zero-interest-rate era, which has since ended.
Public market investors typically price SaaS companies by estimating future revenue. But there is no telling whether in one year or five years anyone will be using SaaS products to the extent they once did. That is why every time a new advanced AI tool launches, SaaS stocks feel a tremor. This may be the first time the terminal value of software is being fundamentally questioned, reshaping how SaaS companies are evaluated.
Slapping AI features on top of existing SaaS products may not be enough. A horde of AI-native startups is rising at a record pace, having completely redefined what it means to be a software company. Software is now easier and cheaper to build, meaning it is easier to replicate. That is good news for the next generation of startups, but bad news for the incumbents that spent years building their tech stacks.
On the other hand, the market also lacks enough time and evidence to show that whatever new business model emerges in SaaS’s wake will be worthwhile. AI companies are sometimes pricing their models based on consumption, where customers pay based on how much AI they use. Others are working on outcome-based pricing, where fees are charged based on how well the AI actually works. This is the current approach of former Salesforce CEO Bret Taylor’s AI startup, Sierra, which offers customer service agents. The approach appears to be working so far, as Sierra recently hit one hundred million dollars in annual recurring revenue in under two years.
There was once the idea that cloud-based software like SaaS would never depreciate and could last for decades. But being in the cloud does not protect SaaS vendors from an entirely new technology rising to compete. Investors are rightfully nervous as AI-native companies pop up, adapt, and build technology much faster than a traditional SaaS company can move. SaaS companies are themselves the incumbents, having replaced old-school on-premises vendors in the last era of disruption.
The most important thing to understand about the SaaS pullback is that it is simultaneously a real structural shift and potentially a market overreaction. Investors typically sell first and ask questions later.
Public-market SaaS companies are not the only ones feeling a chill. A recent report showed that, though the IPO market seems to be thawing for some sectors, there have not been and are not expected to be any venture-backed SaaS filings on the horizon. There is a lot of pressure on large, private, late-stage SaaS companies given the persnickety IPO window, high expectations driven by AI advancements, and the unsteady stock price of already public companies. Some of these companies have even struggled to raise extension rounds in the private market over the same fears.
Nobody wants to be subjected to the volatility of public markets when sentiment can send companies into downward tailspins. It is expected that companies like these will stay private for much longer. Meanwhile, the public market waits to get a good look at the finances of the first AI-native companies hoping to IPO. Reports suggest that both OpenAI and Anthropic are contemplating IPOs, maybe even later this year.
The most likely outcome is something that weaves the old and the new together, as tech disruptions always have. Most of the new features companies are toying with these days will not stick. Enterprises will always need software that meets compliance regulations, supports audits, manages workflow, and offers durability. Durable shareholder value is not built on hype. It is built on fundamentals, retention, margins, real budgets, and defensibility.