Recently, a founder surprised his investor by announcing that he was replacing his entire customer service team with Claude Code, an AI tool capable of autonomously writing and deploying software. This message resonated with Lex Zhao, an investor at One Way Ventures, as a sign of a transformative shift in the industry — suggesting that platforms like Salesforce are no longer the automatic go-to.
“The creation of software has become remarkably easy due to coding agents, prompting many companies to lean towards building solutions rather than buying them,” Zhao explained to TechCrunch.
This shift from buying to building is not the only challenge. The notion of employing AI agents in place of human workers raises fundamental questions about the SaaS business model. Traditionally, SaaS companies have charged based on user seats, which means fees are determined by the number of employees accessing the software. “SaaS has long been celebrated for its predictable recurring revenue, significant scalability, and gross margins ranging from 70-90%,” noted Abdul Abdirahman, an investor with F-Prime, in an interview with TechCrunch.
As a single AI agent or a small team of them can now handle tasks that once required many employees — simply querying the AI for data — this per-seat pricing structure begins to falter.
The rapid evolution of AI also enables tools like Claude Code and OpenAI’s Codex to replicate not just core SaaS functionalities but also the supplementary tools that SaaS vendors traditionally offer to enhance revenue from existing clients.
Furthermore, customers now possess a powerful tool in negotiations. If they are dissatisfied with a SaaS provider’s pricing, they can develop their own alternatives more easily. “Even if they opt not to build their own solutions, this puts downward pressure on the contracts that SaaS vendors can secure when it comes time for renewals,” Abdirahman added.
This trend became evident in late 2024 when Klarna announced that it had replaced Salesforce’s flagship CRM product with its in-house AI system. The realization that numerous other companies could follow suit has unsettled public markets, resulting in a decline in stock prices for SaaS giants like Salesforce and Workday. In early February, a wave of investor selling erased nearly $1 trillion in market value from software and services stocks, with an additional billion in loss later in the month.
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This phenomenon has been termed the SaaSpocalypse, with analysts identifying a trend referred to as FOBO investing—or fear of becoming obsolete.
Despite these anxieties, venture capitalists that TechCrunch consulted believe these worries are short-lived. “This isn’t the end of SaaS,” asserted Aaron Holiday, managing partner at 645 Ventures. Instead, he likened it to an old serpent shedding its skin.
Embrace Change in SaaS
The recent public market trends exemplify this volatility, particularly seen in Anthropic’s product releases. After launching Claude Code for cybersecurity, related stocks plummeted; a similar trend occurred following the introduction of legal tools within Claude Cowork AI, impacting the stock price of the iShares Expanded Tech-Software Sector ETF, which includes firms like LegalZoom and RELX.
Many investors saw this decline as predictable, as SaaS companies had been significantly overvalued previously. Moreover, these organizations primarily grew during an era of zero-interest rates, which is no longer the case, leading to increased costs of doing business.
Public market investors typically value SaaS companies based on projections of future income. However, uncertainty about the continued relevance of SaaS products in the coming years makes every new advanced AI tool launch feel seismic.
“This could be the first instance where the fundamental value of software is being questioned, fundamentally altering how SaaS companies will be assessed moving forward,” Abdirahman noted.
Merely adding AI features onto existing SaaS products may not suffice. A surge of AI-native startups is emerging at an unprecedented pace, redefining the essence of what it means to be a software company.
With software creation becoming easier and more cost-effective, replication has also become simpler, Yoni Rechtman, a partner at Slow Ventures, highlighted in discussions with TechCrunch.
While this revolution presents an opportunity for new startups, it poses significant challenges for established firms that have invested years in developing their technology.
Despite this evolution, the market still lacks sufficient time and evidence to determine whether any new business model that arises post-SaaS will hold promise. Certain AI companies are even instituting pricing models based on usage, where fees correlate with the volume of AI consumed, often measured in tokens (which vary by provider). Others are favoring “outcome-based pricing,” where clients pay according to the effectiveness of the AI solution. This approach resonates with former Salesforce CEO Bret Taylor’s AI startup, Sierra, which operates as a quasi-competitor to Salesforce offering customer service agents.
Currently, this model appears to be gaining traction, as evidenced by Sierra reaching $100 million in annual recurring revenue within just two years.
The belief that cloud-based SaaS solutions would remain impervious to depreciation and would endure for decades has partially held true, especially when compared to earlier software, which required on-premises installation and maintenance.
However, the advent of AI represents a competing force that even cloud-based software isn’t sheltered from.
Investors are understandably apprehensive as AI-native businesses are innovating, adapting, and developing their technologies at a pace far surpassing that of traditional SaaS companies. After all, SaaS firms themselves are the incumbents that previously disrupted old-school on-premises software providers.
This SaaSpocalypse echoes a lyric by Taylor Swift, highlighting the shifts when “someone else lights up the room,” as “people love an ingénue.”
Abdirahman emphasized that the current reevaluation of SaaS is both a legitimate structural change and a potential market overreaction, noting that investors tend to “sell first and ask questions later.”
SaaS IPOs on Hold
Not only public SaaS companies are feeling an investor chill.
A recent Crunchbase report indicated that while the IPO market is showing signs of life in certain sectors, there are no imminent venture-backed SaaS IPOs anticipated.
Holiday suggested that this might stem from the pressure on large, private late-stage SaaS companies, such as Canva and Rippling, due to the limited IPO window, heightened expectations spurred by advancements in AI, and the volatile stock prices of public SaaS firms.
Some mid-sized SaaS companies have struggled to secure funding rounds in the private market, primarily due to the same concerns that plague public investors. “No one wants to endure the unpredictability of the public markets when circumstances can lead to rapid declines,” Rechtman noted, predicting that these companies may remain private for a prolonged period.
Meanwhile, the public market awaits an overview of the finances from the first wave of AI-native companies eyeing the IPO route. Rumors suggest that both OpenAI and Anthropic are contemplating IPOs, possibly within this year.
The most plausible outcome might feature a blend of old and new, as has been the case with prior tech disruptions.
Holiday emphasized that many of the new features companies are currently experimenting with “won’t last,” insisting that enterprises will always require software that meets compliance standards and can handle audits, workflow management, and long-term durability. “Enduring shareholder value isn’t generated from hype,” he remarked. “It’s grounded in fundamentals, retention, margins, real budgets, and defensibility.”
