SaaS business models face pressure from AI agents

The rise of artificial intelligence agents is challenging the traditional per-seat pricing model of SaaS (Software as a Service) and driving a shift in how companies acquire software. Historically, SaaS has been regarded as one of the most attractive business models due to its highly predictable recurring revenue, scalability, and 70-90% gross margins, according to Abdul Abdirahman, an investor at the venture firm F-Prime. However, because AI agents can perform work directly, the model of pricing software based on the number of employee logins is facing pressure. Coding agents like Anthropic’s Claude Code are also lowering the barriers to entry for software creation. “The barriers to entry for creating software are so low now thanks to coding agents, that the build versus buy decision is shifting toward build in so many cases,” said Lex Zhao, an investor at One Way Ventures. This shift is already visible; in late 2024, Klarna announced it had ditched Salesforce to use its own homegrown AI system.

Public markets are reacting to these structural shifts, putting downward pressure on SaaS stocks. Shares of SaaS giants like Salesforce and Workday have declined, and in early February, an investor sell-off wiped nearly $1 trillion in market value from software and services stocks. This volatility is also affecting private markets. According to a Crunchbase report released Wednesday, SaaS IPOs are currently on hold, with no filings expected on the horizon.

The market reaction has led some observers to warn of a “SaaSpocalypse” and describe the current sentiment as “FOBO investing — or fear of becoming obsolete.” Abdirahman of F-Prime noted that this may be the first time in history that the terminal value of software is being fundamentally questioned, which could materially reshape how SaaS companies are underwritten going forward. However, other venture capitalists view the downturn as a transition rather than a terminal decline. Aaron Holiday, managing partner at 645 Ventures, argued that this is not the death of SaaS, but rather a necessary evolution. Meanwhile, alternative business models are emerging, such as outcome-based pricing, where fees are tied to performance. For instance, Sierra, an AI startup, uses this pricing model and hit $100 million in annual recurring revenue. Ultimately, Abdirahman characterized the SaaS pullback as both a real structural shift and potentially a market overreaction.

Why it matters

The rise of AI agents is challenging the traditional per-seat SaaS business model, causing public market investors to question the long-term value of software companies. This structural shift has contributed to significant market volatility and a pause in SaaS IPOs.