SaaS in, SaaS out: This is what’s driving the SaaSpocalypse

One day not so long ago, a founder wrote to his investor with an update: he was replacing his entire customer base with Claude Code, an AI tool that can write and deploy software independently. For Lex Zhao, an investor at One Way Ventures, the message signaled something bigger — a time when companies like Salesforce had stopped being sustainable.

“The barriers to entry in software development are very low because of coding agents, so the build versus buy is changing a lot,” Zhao told TechCrunch.

Comparing and shopping is only part of the problem. The whole idea of ​​using AI agents instead of humans to do work calls into question the SaaS business model itself. SaaS companies currently purchase their software on a per-seat basis – meaning how many employees log in to use it. “SaaS has been seen as one of the most attractive business models due to recurring revenue, increased scalability, and 70-90% higher returns,” Abdul Abdirahman, an entrepreneur at F-Prime, told TechCrunch.

When one, or a few, AIs can do the job – when employees only ask their AI of choice to retrieve data from the system – the model of each seat starts to break down.

The rapid pace of AI development also means that new tools, such as Claude Code or OpenAI’s Codex, cannot duplicate not only the main functions of SaaS products but also additional tools that a SaaS vendor can sell to increase revenue from existing customers.

On top of that, customers now have the ultimate communication tool in their pockets: If they don’t like the prices of SaaS vendors, they can, more easily than ever, create their own solution. “Even if they don’t take an architectural approach, this creates pressure on the contracts that SaaS vendors can protect during the renewal process,” said Abdirahman.

We saw this at the end of 2024, when Klarna announced that it was going out of business Salesforce CRM products in favor of its own AI system. Realizing that more and more companies will do the same is hurting the stock market, while prices for SaaS groups like Salesforce and Workday have been falling. At the beginning of February, the trader wiped out approx $1 trillion in market value from software and stock services, followed by another billion later in the month.

Experts call it that SaaSpocalypseand one expert called it FOBO investing – or fear of losing your job.

However, investors TechCrunch spoke to believe that these fears are temporary. “This is not the death of SaaS,” Aaron Holiday, managing partner at 645 Ventures, told TechCrunch. Rather, it is the beginning of an aging snake shedding its skin, he said.

Move fast, break SaaS

The a model of the human market is best illustrated by Anthropic’s latest release. The company released the Claude Code for cybersecurity, and related stocks fell. It pulled legal gear from Claude Cowork AI, and the share price of the iShares Expanded Tech-Software Sector ETF — a basket of software companies that includes companies such as LegalZoom and RELX — also fell.

In some ways, this was expected, as SaaS companies had been valuable for a long time, entrepreneurs said. It also doesn’t help that these companies expanded their portfolios during the boom period, which is now over. The cost of doing business increases as the cost of borrowing increases.

Investors in the public markets often buy SaaS companies by comparing future earnings. But it’s unclear whether in one year or five years everyone will be using SaaS products the way they did before. That’s why every time a new AI tool is launched, SaaS stocks tremble.

“This may be the first time in history that the value of the software is questioned, and it will redefine the way SaaS companies are written in the future,” said Abdirahman.

That’s because slapping AI features on top of existing SaaS products may not be enough. A host of AI startups are rising at record speedhaving redefined what it means to be a software company.

Software is now easier and cheaper to develop, meaning it’s easier to replicate, Yoni Rechtman, a partner at Slow Ventures, told TechCrunch.

That’s good news for the next generation of startups, but bad news for the incumbents who spent years developing their technologies.

On the other hand, the market no longer has enough time and proof that any new business model that appears for SaaS to arise will be profitable. AI companies sometimes price their models based on usage, meaning customers pay based on how much AI they use, measured in tokens (which each model provider defines differently).

Others are working on “results-based pricing,” where money is paid based on the performance of AI. This, ironically, is the current strategy of former Salesforce CEO Bret Taylor’s AI, Sierra, a. quasi-Salesforce competition which provides customer support.

This approach seems, so far, to be working. In November, Sierra hit $100 million in annual recurring payments of less than two years.

There was also a perception that cloud-based software such as SaaS sales would not decrease in cost and that they could last for many years. This is still true in some ways compared to what came before – on-premise software, which companies had to install and maintain on their own servers.

But being in the cloud doesn’t protect SaaS vendors from a new technology that’s rising to compete: AI.

Marketers are rightfully nervous as AI-powered companies grow, change, adopt, and innovate faster than a traditional SaaS company can move. SaaS companies are the only ones responsible, having replaced old-school vendors in the last era of chaos.

This SaaSpocalypse remembers that Taylor Swift sings songs that happen “when someone sets the room on fire” because “people love ingénue.”

“The most important thing to understand about SaaS pullback is that it is at the same time a systemic change and can disrupt the market,” said Abdirahman, adding that investors often “sell first and ask later.”

SaaS IPOs are risky

Public SaaS companies aren’t the only ones getting investors’ attention.

A Crunchbase report released Wednesday suggests that, however the IPO market appears to be melting in some sectorsthere haven’t been – and aren’t expected to be – any SaaS-enabled documents on the horizon.

Holiday said this could be because there is a lot of pressure on large, private, late-stage SaaS companies like Canva and Rippling given the persnickety IPO window, high expectations driven by AI advances, and the unsustainable value of existing SaaS companies.

Some of these companies, including mid-sized SaaS companies, have also struggled to raise the private market, Holiday said, due to the fear of public investors.

“No one wants the public markets to be in turmoil where sentiment can drive companies down,” Rechtman said, adding that he hopes to see companies like this remain private for a long time.

At this time, the public market expects to see better funding for early AI companies that are hoping for an IPO. The scuttlebutt says that both OpenAI and Anthropic They are thinking about IPOs, possibly later this year.

The most likely result is something that jumps old and new together, as technological disruptions always do.

Holiday said many of the new things companies are playing today “don’t stick” and that businesses are always in need of software that meets compliance regulations, helps with tracking, workflow, and sustainability.

“Shareholder sustainability is not built on hype,” he continued. “It’s built on foundation, savings, margins, realistic budgets, and security.”