1) previously healthy surplus in the SaaS market is shrinking
2) established SaaS companies have lost all existing moats
3) due to the previous two points, investors are reluctant to spend new dollars in this market to expand or retain market share, making life in those companies miserable.
> But the path forward is brutal
And soon™ this is coming to your industry as well!
Margins that were very attractive before, but many industries have small margins and work just fine. restaurants abound on tiny margins.
So I don't think anyone is going to be celebrating if the message is "Don't worry guys, SaaS businesses are now like restaurants: low margin and high risk."
Don't blame AI for this correction, then.
Kinda smells like viral marketing.
My company just switched from slug slow product management driven tech to startup footing. Everything is up for grabs everywhere. And it's always like this in tech when there's a sea change.
> We also struggle to attract this kind of talent. People who fit that profile go to FAANG or the labs.
Hires aren't the problem, culture is. I can take the same new dev that a FAANG hires and turn them into a slug with the development process I see at most b2b saas companies. The flipside is true too: you can take an average dev and set them free and amazing things happen.
Most B2B SaaS companies have three people managing tickets for every developer, executives don't understand bugs are the byproduct of progress (and will be fixed quickly), have name brand enterprise agile-fall style processes, have six months of sprints preplanned, are fixated on UI testing, and do releases like they are publishing CD ROMS. This kind of culture is literally repugnant to innovators, problem solvers, people doing things a new way, and people who value doing things well (because fighting everyone to change for better sucks).
Shoot me now.
ERP world is legacy beyond belief and the technology is neither amazing nor fast as you mention. The trick here is the profound awareness of business processes. I'm a techie in ERP world and deeply aware the business transformation team are the important ones (on implementation... Sales, otherwise,of course :/). The business rules for what we as techies think is simple (payroll, taxes, accounting - how complicated can it be??) are mind blowingly complex yet often poorly documented. I honestly don't know yet if today's LLM can grok them both deeply and safely / consistently enough
Great insider feedback. What is the switching cost for a SoR ? Is it embedded so deeply that is impossible to switch (like IBM mainframes). Wont the incumbents make a good living increasing per-seat prices each year to their required growth rates, and their customers have no option but to pay-up.
> Great insider feedback.
Also a common LLM trope.
High. SoR systems tend to either be where or are closely tied to wherever the work is being done. It's an incredibly disruptive thing to rip out and change all of the process and backend systems that run your business. It's why land and expand is such an effective strategy for these companies and everything is sold as an interconnected economy of scale.
I'm quite a bit more bullish than OP, but I would be lying if I said I wasn't worried about the way the market has reacted and the 'new multiple' trend.
There is always going to be a market for a business operating system, we just might be a similar situation to Netflix/HBO last decade, where the race was about which side could shore up their core weakness first: content engine vs. streaming platform.
We're seeing the same thing happen now. Enterprise has the data, business logic, customer base and distribution but it needs to add SotA AI capabilities into the core of the product without just bolting something on. The Ai companies have the models, talent and are agile enough they can turn out demos and compelling pitches abut they're missing the enterprise data, domain specificity and being able to operate with the regulatory and compliance scaffolding that is required to operate in the enterprise.
Both sides are racing toward the middle, but the problems left for the AI companies to solve are arguably the harder ones, especially when the models themselves are rapidly commoditizing or are open source. It's tough to build enterprise-grade infrastructure on top of a layer where your core differentiation is eroding.
There was another comment in this thread about value moving to the agent layer. I'd push back a little on this. An agent is only useful if it has reliable, governed access to the system where the work actually happens. The SoR that builds a credible agent platform on top of its own data and workflow layer has a structural advantage over a standalone agent tryin to orchestrate across five different systems via an API. IMO the strong foundation wins out here.
Another factor is customer expectations, which can have a way of turning into self-fulfilling prophecies. All the hype around AI in software creates a sense of overall change in the air, making large enterprise managers question if they need to do anything about it. And just by increasing how often that question is asked, orgs will end up changing more things faster than before.
What you’re worrying about is just bigger middlemen.
If you were not a value extracting middleman there would be no fear of replacement, because you can always create more than what you take.
I’m glad if this causes a shift in the industry and we lose x analysts, x architects, x scientists, data engineers and all other formulaic middlemen that just live in a weird middlemen economy.
It is immense luck that we don’t have to actually produce something and we get paid but it is much better if we’re forced to actually do something that isn’t empty.
So what are we going to do about it? Genuinely up for a startup here.
Used to take a few days, 90% was never that hard, now it takes half a day or so.
If you are a huge enterprise, why not?
Data egress and ingress are always possible, but then you have to manage authX (etc) in more than one place, more than two places, oops now it's 3, 4, 5 and now we got ransomware'd
I'm at a medium enterprise and this is true. If I go with e.g. Atlassian I can get everything checked off, even if it's expensive and kinda dogshit. But I know they have a support system, I know they read CVEs and issue patch notes, I know I can find the info for audits and SOC2 cert and everything else.
Oh, some startup offers better software for a tenth the cost? Great. It'll be 30% more work for me to track down all that bullshit? Ok then, complete non-starter, I'll stick with Atlassian.
There’s so much process that gets put around the tools. Headcount that’s justified. Etc.
TLDR excerpt: - Top layer — the AI agent. The thing that actually executes the work. - Middle layer — the SaaS UI. The dashboards, the workflows, the buttons you click. - Bottom layer — systems of record. The databases, CRMs, and ERPs that store the real data.
Right now, value is getting sucked upward into the agent layer and downward into the data layer. Everything in the thin middle gets crushed.
AI slop.
I’ve been following open-source alternatives long before AI and the biggest drawback was bad UI design, but AI makes that easier and now even more open-source alternatives are launching.
The incentives made this the obvious next step. SaaS are not something that continuously needs to made better, but them being publicly traded means they have to. So what do they do? They add more features that most customers don’t need, they put essential features behind a bigger paywall, they enshittify by adding ads or selling your data. As these SaaSes added more features and the configuration to boot, people were already learning to “program” but within their walled gardens. If you’re already learning how to configure these applications, how big of a step is no-code and now asking a terminal agent to build that one functionality you need?
Before AI became big, you could already see YC funding open-source alternatives to popular applications since they also saw this coming. Notice how they’ve slowed that down now because they know it will lead to their own demise.
How I know this was written by a marketing person. Stop grifting, please.