3 factors that will separate the ‘SaaSpocalypse’ winners from losers
- In today’s CEO Daily: Diane Brady reports on how CEOs should be thinking about the ‘SaaSpocalypse.’
- The big leadership story: The potential fallout of xAI’s mass X-odus
- The markets: Mixed globally, with European stocks inching higher on positive earnings reports.
- Plus: All the news and watercooler chat from Fortune.
Good morning. Sell! Buy! Wait, what’s going on with software as a service, that generation of tech players that grew to behemoth status by letting subscribers access software from the cloud? Companies like Salesforce, Oracle, Asana, DocuSign and Intuit have taken a drubbing in recent weeks; Workday co-founder Aneel Bhusri is coming back as CEO to deal with the challenge.
What precipitated the latest selloff—dubbed ‘SaaSpocalypse’ by Jeffries analyst Jeffrey Favuzza—was the one-two punch of Anthropic and then Open AI launching agentic AI systems for enterprises that appear to perform some key functions currently provided by SaaS players, undermining their business models. Will Anthropic’s Claude Cowork and OpenAI’s Frontier doom the SaaS giants? It depends. Check out my colleague Jeremy Kahn’s take on that.
What’s clear is that a few factors will differentiate the winners and losers in this new era.
Data: Mission-critical software that’s integrated with sensitive, regulated or high-value proprietary data is hard to dislodge. I’ve yet to meet a leader who’s eager to outsource their payroll or enterprise security to a large language model. What we pay our people is more sensitive than what we pay for products. That makes me wonder if HR companies like Workday, for example, are in a stronger position than some investors might think.
Volume: SaaS companies tend to charge by user, not usage. Who hasn’t seen a new software contract spark lobbying efforts in the office for access to one of the “seats” authorized under the new license. That’s different from the model used by Milan Shetti, CEO of Rocket Software, which serves clients in highly regulated industries like financial services, insurance and healthcare. “We have usage‑based pricing, not seat‑based pricing,” Shetti told me earlier this week. “The SaaS companies with user‑based pricing have taken a hit, because if AI improves productivity, the number of users goes down.”
Pricing: As Palantir CEO Alex Karp pointed out this month while reporting record earnings, AI should reduce IT costs as it becomes better at writing and managing enterprise software. Instead, SaaS costs have been outpacing inflation, as vendors push through aggressive price increases. Some are trying to monetize and recover their own AI investments with premium packages. (We know Microsoft has spent a big chunk of change.) With more functions come higher price tags. But CIOs and their bosses are clearly facing their own budget constraints. Some may welcome the disruption wrought by large language models as a wakeup call for vendors.
Of course, every leader has to consider changing gears in this environment. Whether you plan to vibe code your way to growth or stick with what’s worked thus far, I’d love to hear from you about your experience.
Contact CEO Daily via Diane Brady at diane.brady@fortune.com
This story was originally featured on Fortune.com