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Good morning. For sale! Buy it! Wait, what happened to software as a service, that generation of tech players that grew to behemoth status by allowing subscribers to access software from the cloud? Companies want Salesforce, Oracleasana, DocuSign and Intuit has taken a drubbing in recent weeks; Co-founder of workday Aneel Bhusri returns as CEO to face the challenge.
What caused the latest selloff—called the ‘SaaSpocalypse‘ by Jeffries analyst Jeffrey Favuzza—is the one-two punch of Anthropic and then Open AI launch of AI agent systems for businesses that appear to perform some key functions that are currently provided by SaaS players, disrupting their business models. Can Anthropic’s Claude Cowork and OpenAI’s Frontier destroy the SaaS giants? It depends. Check out my colleague Jeremy Kahn take that away.
What is clear is that a few factors will distinguish the winners and losers of this new era.
Data: Mission-critical software mixed with sensitive, regulated or high-value proprietary data is difficult to remove. I have never met a leader who was eager to outsource their payroll or business security to a big 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 think.
Volume: SaaS companies tend to charge by user, not usage. Who did not see a new software contract that mobilized lobbying efforts in the office for access to one of the “seats” allowed 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 such as financial services, insurance and healthcare. “We have usage-based pricing, not seat-based pricing,” Shetti told me earlier this week. “SaaS companies with user-based pricing are hit, because if AI improves productivity, the number of users will decrease.”
Price: As Palantir CEO Alex Karp pointed out this month while reporting record earningsAI need to reduce IT costs because it gets better at writing and managing business software. Instead, SaaS costs are outpacing inflation, as vendors push for aggressive price increases. Others are trying to monetize and recoup their own AI investments with premium packages. (We know Microsoft spent a large chunk of change.) With more functions come higher price tags. But CIOs and their bosses clearly face their own budget constraints. Some may take the disruption created by large language models as a wake-up call for vendors.
Of course, every leader should consider changing gears in this environment. Whether you’re planning to vibe code your growth path or stick with what’s worked so far, I’d love to hear from you about your experience.
Contact CEO Daily by Diane Brady at [email protected]
Top leadership news
X-odus from xAI
Half of Elon Musk’s xAI founding team is now there LEAVING the company, just as a public listing of the newly merged xAI–SpaceX is gaining steam. The exodus plus product has stumbled, safety controversies surrounding its Grok chatbot, and heavy infrastructure needs could complicate the path to a public listing and scare off investors.
CBO projects fewer workers by 2035
A new outlook report from the Congressional Budget Office PROPHESIES that the US will have 2.4 million fewer working-age Americans in 2035 than predicted last year. The onset of AI could offset lost productivity, with the CBO forecasting US economic output to be 1% higher in 2036 than without AI.
Is reskilling the answer?
Khan Academy CEO Salman Khan recently SPOKE luck that even a 10% reduction in white-collar jobs due to AI “would feel like a depression.” His solution was a massive nationwide reskilling initiative.
The markets
S&P 500 futures rose 0.26% this morning. The last session was flat at the close. STOXX Europe 600 rose 0.32% in early trading. The UK’s FTSE 100 rose 0.31% in early trading. Nikkei 225 in Japan down 0.02%. CSI 300 in China increased by 0.12%. The South Korean KOSPI increased by 3.13%. NIFTY 50 in India fell to 0.57%. Bitcoin increased to $68K.
Around the watercooler
Big Oil once again welcomed global exploration with Chevron’s return to Libya by Jordan Blum
Meet the serial CEO who took over Kroger: He started his career stacking supermarket shelves and sold everything at 17 thanks to his persistent mother by Emma Burleigh
Ex–Google exec says law and medical degrees are a waste of time because they take so long to complete that AI catches up to graduation by Preston Fore
45 years of declining middle class cost you $12,000 a year said Jake Angelo
CEO Daily is compiled and edited by Joey Abrams, Claire Zillman and Lee Clifford.
