The ‘SaaSpocalypse’: How AI is Rewriting the Rules for Software
A quiet shift is underway in the software world. It began with a simple text message – a founder informing an investor they were replacing their entire customer service team with an AI tool. To Lex Zhao, Managing Partner at One Way Ventures, this wasn’t just a single company’s decision; it signaled a potentially seismic change. The era of automatic reliance on software-as-a-service (SaaS) giants may be waning, giving way to a new landscape shaped by accessible AI.
From Build vs. Buy to Build and Build
For years, businesses largely chose between building software in-house or purchasing it from established SaaS providers. Now, thanks to the proliferation of coding agents like Claude Code and OpenAI’s Codex, that equation is changing. “The barriers to entry for creating software are so low now that the build versus buy decision is shifting toward build in so many cases,” explains Zhao. This isn’t just about cost savings; it’s about control, customization, and the ability to rapidly adapt to changing needs.
The Per-Seat Pricing Problem
The traditional SaaS model, reliant on per-seat pricing, is particularly vulnerable. SaaS companies have thrived on predictable recurring revenue, immense scalability, and high gross margins. However, if AI agents can perform the perform previously done by multiple employees, the justification for paying per user diminishes. As Abdul Abdirahman, an investor at F-Prime, points out, “When one, or a handful, of AI agents can do that work… that per-seat model starts to break down.”
The Rise of AI-Native Companies and the $1 Trillion Wake-Up Call
The impact isn’t limited to pricing models. AI-native startups are emerging at a record pace, capable of replicating not only the core functions of existing SaaS products but also the add-on tools that vendors use to increase revenue. This rapid innovation has rattled public markets. In February 2026, investor sell-offs erased nearly $1 trillion in market value from software and services stocks, following a similar billion-dollar drop earlier in the month.
Experts are calling this disruption the “SaaSpocalypse,” a term reflecting the fear of obsolescence. However, some investors believe the panic is overblown. Aaron Holiday, a managing partner at 645 Ventures, suggests Here’s less a death knell for SaaS and more a necessary evolution – an old snake shedding its skin.
Beyond Per-Seat: New Pricing Models Emerge
The shift is forcing companies to explore alternative pricing strategies. Consumption-based pricing, where customers pay based on AI usage (measured in tokens), is gaining traction. Outcome-based pricing, where fees are tied to the AI’s performance, is also being tested. Sierra, a customer service AI startup founded by former Salesforce CEO Bret Taylor, has demonstrated success with this approach, reaching $100 million in annual recurring revenue in under two years.
SaaS IPOs on Hold, AI IPOs on the Horizon
The uncertainty surrounding the future of SaaS is impacting the IPO market. While some sectors are seeing a thaw, venture-backed SaaS companies are currently avoiding public offerings. This hesitancy stems from concerns about market volatility and the need to demonstrate long-term value in the face of rapid AI advancements. Meanwhile, all eyes are on potential IPOs from AI giants like OpenAI and Anthropic.
Durability and Fundamentals Remain Key
Despite the disruption, fundamental principles remain crucial. Holiday emphasizes that durable shareholder value isn’t built on hype but on retention, margins, real budgets, and defensibility. He believes that many of the new features being touted won’t stick, and enterprises will continue to require software that ensures compliance, supports audits, manages workflow, and offers long-term reliability.
FAQ
What is the ‘SaaSpocalypse’?
It’s a term used to describe the disruption of the traditional SaaS business model due to the rise of accessible AI and the increasing ability of companies to build software in-house.
Will SaaS companies disappear?
Not necessarily. Experts believe SaaS will evolve, but the traditional per-seat pricing model is likely to be challenged.
What are the alternative pricing models being explored?
Consumption-based pricing (paying for AI usage) and outcome-based pricing (paying based on AI performance) are gaining traction.
Is now a decent time for SaaS companies to go public?
Currently, many SaaS companies are delaying IPOs due to market volatility and investor concerns.
Pro Tip: Don’t underestimate the importance of fundamental business principles. Even in a rapidly changing landscape, strong retention rates, healthy margins, and a defensible market position are essential for long-term success.
Did you know? Klarna ditched Salesforce’s CRM product in 2024 in favor of its own AI system, demonstrating the growing feasibility of building in-house solutions.
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