On Thursday, SalesForce (CRM) reported weaker-than-expected results, leading to the stock's biggest one-day loss since 2004. It was the newest in a series of disappointing results this season across all B2B SaaS corporations.
In this reporting quarter, almost the whole B2B SaaS industry reduced its forecasts or disillusioned investor expectations, including Asana (ASAN), Atlassian (TEAM), DataDog (DDOG), Snowflake (SNOW), Twilio (TWLO), and Workday (WDAY).
It isn’t (yet) AI
“Software is eating the world,” enterprise capitalist Marc Andreessen declared in a 2011 Wall Street Journal opinion piece. What followed was an extended wave of software-as-a-service startups that overran established big-box software corporations and led to among the most successful IPOs of the last economic cycle.
Recently, nonetheless, there was increasing speculation that giant language models (LLMs) pose a threat to the whole software ecosystem. In an aptly named short paper entitled “The end of software“, enterprise capitalist Chris Paik of Pace Capital claims that the prices of software development and maintenance may be significantly reduced, resulting in the proliferation of recent, agile software solutions that would replace traditional SaaS models.
Paik argues that this shift could lead on to a fundamental rethinking of how software is developed, sold and used. This could render existing B2B SaaS business models obsolete because the market shifts to AI agents. He even goes up to now as to say, “A pc science degree today could be like a journalism degree within the late 90s.”
There is little doubt that GPT and Github's Copilot are already proving useful to software developers. However, Paik and others jumping on the “AI eats every thing” bandwagon are probably underestimating the issue of the duty. In a world where LL.M.s struggle with simple arithmetic, logical reasoning, and hallucinations, that definitely seems far-fetched.
In a thread on X, Deedy Das, a enterprise capitalist at Menlo Ventures, expressed a more cautious view, writing, “I believe too many individuals trivialize all of the things a superb SWE actually must do. AI could increase productivity and automate numerous tasks, but assisting (to the purpose of full automation) is a large leap of religion.”
Das goes on to say that job growth in software is slowing resulting from several aspects, including overstaffing and, satirically, the efficiencies created by software. But, Das says, the cause is certainly not “AI taking on software.”
Spreading the advantages of AI
One of the core guarantees of technological innovation is that as adoption increases, everyone wins. Software and SaaS corporations that adopt and integrate AI the fastest might be the primary to reap the advantages and have the option to develop features which are much more useful to their customers.
In fact, we are able to already see this split out there, where flexible and niche-focused B2B SaaS corporations are thriving despite overall declines within the industry. Companies like Appfolio (APPF), AppLovin (APP), Q2 Holdings (QTWO), and Zeta (ZETA) are beginning to stand out from the group as their earnings rise.
As more mature SaaS corporations integrate, deploy and, more importantly, monetize AI, they may return to higher growth.
The software problems are currently more banal
As Deedy Das suggested, the reason for the recent decline in B2B SaaS revenue and profit growth is more mundane. Companies have over-hired and laid off expensive labor during COVID. According to tracking website Layoffs.fyiCompanies have laid off 263,180 tech staff in 2023, followed by one other 89,193 in 2024.
Most SaaS offerings are priced per seat. Since there’s a direct correlation between headcount reductions and revenue, this easily translates to billions of dollars in lost recurring revenue across the industry. In fact, one in all the essential advantages that SaaS corporations have touted has been the power to scale up and down as needed and with no commitments.
As macroeconomic conditions increase pressure on corporations to scale back costs, these SaaS bills are finally coming under scrutiny. Some CIO surveys have identified that as much as 30% of SaaS spend may very well be wasted.
Meanwhile, unemployment rates in California and Washington proceed to rise, at the same time as tech job postings proceed to say no since their peak in 2022. This suggests that with no sharp increase in economic growth and hiring, the SaaS industry is unlikely to return to growth within the near future.
