Today's sharp thought: AI won't kill SAAS
Software business models aren't dead, and that's a good thing
We are entering an era where artificial intelligence enables software creation at an unprecedentedly low cost. You no longer need a computer science degree or even to know how to code; typing instructions in plain English can yield deployable, sellable software. The barrier to entry has never been lower, and the first million-dollar software product created by someone who can’t write a line of code is probably just around the corner (Riley might do it).
Given this landscape, one might question why the stock market continues to highly value publicly traded companies like Salesforce (technical breakout here). If anyone can produce software (like Klarna), why invest in established SaaS enterprises?
Turns out there’s a good reason. The answer lies in the unique advantages that these companies hold—advantages not easily replicated by newfound accessibility to AI-driven development tools.
Enterprise software companies excel because they solve complex workflow problems, have deeply integrated installations, and possess significant distribution advantages. Their products are ingrained in business processes, making them indispensable.
Moreover, these companies have established trust and brand recognition that command pricing power (like Adobe), factors that foster long-term client relationships and create high switching costs. Players like Salesforce, Adobe, Snowflake and others are not resting on their laurels either; incumbents are actively investing in AI to enhance their offerings.
And this disruption from within is something these software incumbents have done before. Look at Adobe’s successful transition to cloud-based models in the 2010s. It was considered very bold in 2011, and was apparently bitterly opposed by most of Adobe’s VP’s at the time. But look at what happened:
Don’t get me wrong: I’m a big believer in the power of AI to democratize software creation. I think it can offer startups tools to innovate faster. But AI doesn’t necessarily level the playing field against incumbents with substantial resources and established market positions. Customers now expect more, and while AI raises the bar for quality, enterprise software companies are well-positioned to meet these heightened expectations.
Today’s Sharp Thought: The death of software has been overblown. Two years into the ChatGPT era, AI development is looking more likely to benefit cloud incumbents rather than disrupt them. Software isn’t dead; it’s evolving into multiple classes—disposable and enterprise—and enterprise software has the moats to stay.