SaaSpocalypse No! Stop with the rumors of software's death and listen to Box CEO Aaron Levie

Are you as fed up of hearing about the bloody ‘SaaSpocalypse’ as I am? The term came into all-too common currency last week following Anthropic’s release of some new AI tech that for some reason sent the markets and commentators into a tail-spin and, frankly, take leave of their senses in many cases

The main losers as Wall Street briefly stopped obsessing about how much money tech firms plan to spend on infrastructure this year and whether OpenAI has a cat's chance in hell of delivering on its never-knowingly-undersold growth claims and moved on to buying into the thesis that the real losers will be software firms, particularly SaaS firms, which will see their growth prospects vanish in the face of AI innovation.

Yes, the so-called ‘death of SaaS’ that the likes of OpenAI CEO Sam Altman has been pushing as an idea went mainstream - and seemingly everyone panicked. I’m not going to regurgitate the ‘arguments’ behind this - that’s a topic that’s been more than adequately aired over the past few days - but I will point to tech thoughtleader Geoffrey Moore’s timely comments to me last week when he stated:

SaaS contains almost a half a century of business acumen, and I'm sorry, but you're not going to just displace a half a century of experience, you're just not. Every company in the world runs on systems of record and has overlaid systems of engagement, so nobody's going to rip them out...If you believe that the end product is a deterministic action, the universe’s  deterministic actions live in the systems of record and systems of engagement. They don't live in AI. OpenAI has no library of determinist actions. SAP does, Oracle does, Hubspot does, Salesforce does, ServiceNow does.

Been here before

The death of SaaS is a theme that has been aired and returned to before Altman chipped in with his thoughts, most notably when Klarna’s CEO declared he was kicking out Salesforce and Workday and replacing them with AI-enabled solutions of his own. How that turned out ought perhaps to be a cautionary tale for everyone...

On the back of the Klarna headlines, the likes of Salesforce CEO Marc Benioff and his counterpart at Workday, Carl Essnenbach passed comment on the SaaS RIP notion, the latter particularly firmly:

I think this whole concern around AI disruption and the potential negative impact on seat-based models [is] completely overblown. In fact, for Workday, we're going to leverage our entrenched position in the market and our strong customer base, and we're going to be one of the go-to providers for AI solutions in the enterprise.

By coincidence, another articulate SaaS CEO was on hand to discuss the death of SaaS notion around the time the ‘SaaSpocalypse’ meme was gaining its ill-deserved traction. Speaking at the Cisco AI Summit, Aaron Levie, co-founder of Box, bluntly declared that software as we have known it is not dead, far from it:

Software will be cheaper to build, which means you're going to get more SaaS, and if you get more of something, and you have the same budget, then prices go down. I'm sympathetic to the idea that you're going to see more competition in software, and I'm sympathetic that agents will do some capabilities that we've currently had in software. Those two things have to happen. They have to be inevitable.

The part that I'm not sympathetic to is actually the two parts are not synthetic. One is that we're just going to code our own CRM system or ERP system. I largely don't think that's going to happen. We all collectively have a fixed amount of resources, and we can deliver more things that [our customers] want to buy and better sort of support their needs. Coding an ERP system is not on that list of things our customers cares about.

There's a couple categories where maybe you have to go and customize your system or build your own software for that, because there's nothing in the market that solves your issue, but for the most part, that doesn't seem to be where you'd want to deploy your scarce resources.

Levie also cited Moore to back up his argument, noting that in the seminal Crossing the Chasm, he outlined the concept of core versus context:

You deploy resources on the things that are core, and you outsource the things that are context...I don't think that fundamentally changes due to AI.

Levie also picked up on theme aired last week by Salesforce when he said:

If you imagine a world of 100 times or 1000 times more agents in an enterprise than people, those agents are all going to be non-deterministic. They're all going to be probabilistic. They'll all make the wrong decision five percent of the time, or two percent of the time...If you're imagining an ERP system with 1000 times more agents than people were ever logging into it, then that ERP system has to do a really good job of co-ordinating what agents can work on what data they have access to etc. That's the deterministic side. So the non-deterministic are the agents, which are kind of what we used to do with software, and the deterministic side is the workflow that says it's going to happen exactly the same way every single time. We will never accidentally have agents look at data that you shouldn't have access to. The power of software is we've codified our workflows and business processes into a system that will run the same way every single time. I don't think, that reduces in value, even in a world of cheaper or [greater] volume of software.

There is the possibility of pricing and margins pressure on software firms, he admitted:

If we're going to add way more features because of AI, we're going to build just way more software, we will not charge the commensurate amount of what all of the rest of the market would have charged for every single incremental piece of software we produce. We’re going to add that as more and more value for our customers. So then, on a relative basis, software gets cheaper. If everybody in the economy does that, that's kind of micro economics on that front.

Conversely, though, I think we're all going to be deploying agents. We have a set of agents, you have a set of agents. Every company will have agents that basically augment the labor side of what used to be required to use our software. And for that, we'll charge probably a consumption model, and you'll pay for it like you've paid for service providers in the past,.

My take

I’ve always had a lot of time for Levie and I’m going finish with his advice to enterprises:

Definitely buy more software, because the SaaS market needs that right now!

But it doesn’t need any more damn fool made-up doom-mongering phrases to scare the horses on Wall Street!

Onwards - please!