Should SaaS Be Scared of AI?

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SaaS was once the great disrupter. It took clunky, enterprise software and reimagined it as something elegant, efficient, and cloud-based. It turned arcane processes into monthly revenue streams. It promised usability over complexity, access over ownership. But something fundamental is shifting. The same model that transformed industries is now staring down its own existential threat. And it’s not from a rival company or a competing category — it’s from a force that’s rethinking the very premise of software itself: artificial intelligence.

At its heart, SaaS is about productising expertise. A payroll platform isn’t just about compliance — it’s years of HR know-how baked into an interface. A marketing dashboard isn’t just a series of charts — it’s a distillation of campaign logic, structured into a workflow. SaaS took the smartest way to do something and sold it as a system. That made perfect sense when systems were scarce. But AI is now offering a new proposition: you don’t need the system. You can just get the answer.

Generative AI is rapidly encroaching on the territory SaaS used to own. Whether it’s ChatGPT writing contracts, Claude planning marketing campaigns, or Microsoft’s Copilot stitching together insights across departments, these tools are bypassing the platforms entirely. What used to require three logins, a training video, and a monthly subscription can now be handled with a single well-phrased prompt. A 2024 study by Andreessen Horowitz found that 42% of knowledge workers are already using generative AI in place of SaaS products for key tasks. These aren’t edge cases or experimental uses — they’re everyday workflows, quietly migrating out of the traditional SaaS stack.

As tech analyst Benedict Evans puts it, “Generative AI is compressing the distance between intention and execution. Many SaaS products exist in that gap. And that gap is shrinking.” The danger isn’t that AI replaces your software — it’s that it removes the need for your category altogether.

Bypassed, Not Beaten

For years, the strength of SaaS was in specialisation. Build a tool for a single pain point, integrate it well, charge a subscription. But over time, the stack became bloated. Companies now use hundreds of tools across their business, each solving one small problem. According to Blissfully’s 2024 SaaS Trends Report, the average mid-sized firm manages over 250 different SaaS applications. It’s no wonder users are overwhelmed. They don’t want more tools. They want fewer — or none at all. AI answers that call with a compelling alternative: don’t open another app. Just ask the assistant.

This shift is quiet but brutal. Many SaaS products aren’t being beaten in a head-to-head competition. They’re being bypassed altogether. When a user realises they can generate a legal contract without using their CLM tool, or create a training module without launching their LMS, that decision rarely shows up in your churn report. It’s not a lost deal. It’s a lost reason to exist.

The implications are broad and immediate. HR platforms, marketing tools, edtech products, project management suites, even certain fintech applications — all face pressure from AI systems that can replicate or approximate their value with fewer steps and less friction. If your product primarily repackages repeatable tasks, codifies standard logic, or simplifies templated workflows, there is a strong chance it’s already being replaced — not by a better SaaS tool, but by a generative model. And users are discovering it not through strategy, but through curiosity. The threat isn’t just competition. It’s irrelevance.

Tomasz Tunguz, SaaS investor and analyst, captured it neatly: “If your SaaS product is a thin wrapper around advice, automation, or content — congratulations, you’re already being undercut by a prompt.” That kind of blunt truth isn’t pessimism. It’s clarity. And it’s what the SaaS world needs right now.

The Rebuild Starts Now

This doesn’t mean SaaS is finished. But it does mean it needs to evolve — and fast. The next wave of successful products will be AI-native rather than AI-adjacent. They’ll assume the user is already co-working with AI and build accordingly. They’ll operate on proprietary data that can’t be scraped or cloned. And they’ll offer not just functionality, but judgement — the ability to guide, contextualise, and add trust to AI-generated actions. Tools that orchestrate workflows, verify inputs, or govern usage will become indispensable layers between raw AI and human teams. And vertical SaaS, deeply embedded in a specific industry’s workflows and culture, will still offer value that generic models can’t replicate easily.

Sarah Guo, founder of Conviction VC, framed it like this: “We’re moving from ‘software-as-a-service’ to ‘software-as-a-sidekick.’ The value isn’t in the tool. It’s in what it learns about you.” That subtle shift — from system to sidekick — is where the next great SaaS companies will emerge.

This is not just a technical shift. It’s philosophical. SaaS has always been about structure. AI is about fluidity. SaaS taught users how to operate within a framework. AI is dismantling those frameworks and offering results directly. That makes for a more dangerous competitor — one that doesn’t play by the same rules and doesn’t need to.

So yes, SaaS should be scared of AI. Not scared into paralysis, but scared enough to act with urgency. The very things that once made SaaS irresistible — simplicity, specialisation, standardisation — are becoming liabilities in a world that increasingly values adaptability, autonomy, and intelligence. Software is still eating the world. But now, AI is changing the menu. And if SaaS doesn’t evolve fast enough, it may find itself not at the table, but on the plate.

Author’s note: I’m not an AI researcher or SaaS futurist — but I’ve spent a large part of my life training teams to sell SaaS products across multiple industries and markets. I’ve watched the rise of AI with deep curiosity and a healthy dose of scepticism, and I’ve seen the footrace it triggered: every product, platform and pitch now claims to have an ‘AI proposition.’ Even my barber recently told me he’s “integrating AI” — though I’m not sure if that means smarter booking or haircuts based on sentiment analysis. Either way, something big is happening, and if you’re selling SaaS today, it’s worth paying attention.