'AI is an enormous tailwind for software companies': 5 tips for adapting to the new 'SaS' model

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The software-as-a-service approach may be fading, but what's going to take its place? It could be a whole new level of SaaS.

The so-called "SaaS apocalypse" is over, venture capitalist Orlando Bravo proclaimed in a recent interview with CNBC. Rather than being a software killer, "AI is an enormous tailwind for software companies," he opined. "I can tell you in so many ways why AI is the biggest thing to happen to the software industry now. Software companies can move to a completely new level of business automation by automating some parts of human judgment."

Also: How Workday and other software providers plan to survive AI

Salesforce.com, the poster child of SaaS, doesn't appear to be feeling any apocalyptic pain, either. In May, the company announced revenue of $11.1 billion for its most recent quarter, up 13% year over year. Boosting its presence in the software space, the company recently acquired customer service software company Fin, formerly known as Intercom, for $3.6 billion. In the meantime, while IBM just experienced a brutal quarter, its software side saw 5% growth.

The SaaS model may not be fading as we once thought, but it is evolving into a new form that was explored in an analysis by Saurabh Gupta and Phil Fersht of consulting firm HFS. Looking at the state of things to come, the current wisdom that SaaS and IT service providers will fall to the AI wave is misleading, they argue.

A funny thing happened on the way to the SaaS apocalypse -- enterprises aren't cooperating. The AI-replacing-software scenario "only works if enterprises can actually deploy AI at scale, and today they simply cannot," Gupta and Fersht observe. "Until organizations resolve their technology, data, process, and talent debt, AI will remain trapped in pilots and proofs of concept rather than fundamentally changing how businesses operate."

The SaaS apocalypse was more on Wall Street's mind than Main Street's, they suggest. Tech investors and their gurus have declared SaaS dead, but Main Street businesses are still figuring out how AI will fit into their operations and will likely stick with SaaS solutions for some time to come to keep things moving.

Also: How the rise of AI-native software could give SMBs enterprise-level power

What is coming is a hybrid approach to software delivery -- which Gupta and Fersht define as "services-as-software." This is marked by a convergence of services and software firms. "Services firms are increasingly becoming software businesses, software companies are moving deeper into implementation and business transformation, and both are converging on the same outcome-based economic model, even if investors have yet to recognize it," they state.