Is the SaaSpocalypse over? And if so, what comes next? | usagoldmines.com

For the past year or so, predictions of SaaS’s demise have dominated the tech conversation.

Headlines warned that AI tools would replace traditional software, engineers would become obsolete and the SaaS industry itself was headed for extinction.

The narrative became so widespread that Wall Street gave it a name: the ‘SaaSpocalypse’.

Fortunately, reality has proved far less dramatic.

While the SaaS market – once the darling of investors – has undoubtedly taken a substantial hit, it is a long way from dead. In fact, I would argue that software doesn’t die; it evolves.

If history has taught us anything, then it’s that major technology shifts rarely eliminate software altogether. Instead, they reshape it, with the biggest winners often being those agile enough to adapt.

From the rise of the internet to the shift to cloud computing, time and time again we’ve seen established players demonstrate an ability to evolve alongside technological change.

The AI era is unlikely to be any different.

SaaS subsectors best positioned to unlock AI-enabled growth

And I’m not alone in this view. Over recent months a number of high-profile economists, technology historians and analysts have arrived at that same conclusion. JPMorgan continues to champion the SaaS subsectors best positioned to unlock AI-enabled growth. Meanwhile, Goldman Sachs projects the global app software market could still reach $780bn by 2030, with agentic AI ultimately expanding the market rather than shrinking it.

Put bluntly, AI isn’t killing SaaS but rather separating the bad from the good. For years, SaaS startups have benefited from intense market hype and lofty valuations, often with minimum regard given to operational efficiencies, product differentiation or true value creation. Today that playing field looks a lot different. In effect, AI is now acting as a filter, revealing which SaaS models are superior and offer a genuine point of differentiation and, in turn, those which have for far too long favored style over substance.

For SaaS founders then, it isn’t time to panic. In our experience, investors-in-the-know will be more than willing to overlook the misguided SaaS narrative and recognize a genuine high potential opportunity should it arise.

Take, for example, the mid-market. Although much focus tends to surround the startup scene, I would argue that established software vendors are actually best positioned for AI transformation. After all, they already possess powerful structural advantages, including proprietary customer data, deeply embedded workflows and long-term contracts.

Moreover, they often sit on years of customer data. In this way, unlike startups where the focus is typically product, these firms actually have something meaningful to transform.

Well positioned to use AI to strengthen their market position

Far from becoming obsolete overnight, many are well positioned to use AI to strengthen their market position. Take, for example, Keyword.com. Having early recognized that search itself is changing, it launched a product to track brand visibility across AI platforms like ChatGPT, Perplexity, and Gemini. That repositioning opened up an entirely new growth vector.

In terms of how founders can best navigate this new terrain, it’s important to look beyond product and focus on structural resilience. For a long time, SaaS benefited from assumptions such as high multiples on ARR, heavy adjustments for stock-based compensation, and a willingness to prioritize growth over almost everything else.

That is now being replaced by a much more grounded framework. Investors are increasingly looking at real profitability, on a GAAP basis, and asking harder questions about cost structure, for example around sales and marketing efficiency, and now AI-related compute costs as well.

At the same time, as founders will be aware AI is introducing new variables. Revenue may be less predictable if it’s usage-based, and margins can be more dynamic because of inference costs, meaning investors won’t simply rely on simple rules of thumb anymore.

Valuation is becoming less about applying a multiple and more about understanding the underlying business, with a focus on true earnings quality, defensibility and efficiency.

Another significant but largely underappreciated upshot of the current environment is the emergence of roll-up opportunities.

The SaaS landscape is becoming increasingly fragmented

As valuations normalize and weaker players struggle to differentiate, the SaaS landscape is becoming increasingly fragmented. This creates fertile ground for consolidation strategies, particularly for investors with deep sector expertise.

Importantly too, AI enhances this model by enabling efficiencies across portfolios, from automated customer support to streamlined marketing and product development.

For investors, this is opening up a different kind of opportunity in terms of not just backing individual high-growth companies but participating in broader aggregation strategies that can unlock value through scale and operational improvement.

This means that purposefully positioning your business for ease of integration and standardization could pay dividends.

The short of it? Software isn’t going anywhere. Just like the major tech trends before it, it is simply evolving from a market that is less about hype and surface-level metrics to a more practical, mature model driven by genuine business outcomes.

For founders, this may mean navigating a more complex operating environment. But it also creates an exciting opportunity to differentiate.

Not all SaaS firms are primed for this new investment landscape, so those who pay due diligence by prioritizing intelligence over features, operational prowess and AI interoperability to deliver clear, measurable value will be best positioned to succeed.

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