The thing that is underpriced right now in software is that AI will meaningfully increase the TAM of many software categories. With AI Agents that do work for people, from coding to reviewing contracts, these are brand new dollars in software spend that didn’t exist before. https://t.co/e1NBd87S0f
— Aaron Levie (@levie) January 16, 2025
So there was a looming meta issue in SaaS many of us older times worried about for years, until the 2020-2021 boom:
Will we run out of budget to buy SaaS? The dollars put into SaaS can’t just keep growing … forever.
Or put differently, when will it no longer be “early innings” in the overall amount of global SaaS spend?
Because forget about any individual SaaS or Cloud company, the overall markets kept growing at a breathtaking pace:
Gartner not only has predicted SaaS spend will hit $300 Billion this year, but importantly, grow almost 20%. And that’s after years of similar growth:
There was no way this could last forever. SaaS couldn’t consume 100% of all global IT budgets. It had to slow down at some point, and maybe soon.
And then all our jobs would just get a lot harder.
Well, it’s not clear exactly how much of a permanent boost to overall software IT budgets AI is giving, but one thing is clear: the boost is significant and real. It’s not all a substitution change (i.e., swapping out old b2b software for new AI).
Some budget is coming from headcount reallocated to agents and per resolution outcomes, e.g. in contact center. Some budget is coming from an expanded “we have to keep up” IT budget. But it’s clearly expanding.
I don’t think we’ll know clearly exactly how much AI is adding additional budget to overall business software / SaaS spend for a while. It’s crystal clear how much it’s adding to data center and infrastructure spend, but exactly how that translates to increase application spend will take a little time to know for sure.
But however much it is — is a gift to us all. It’s more budget to buy all our products. Importantly, much more than we would have anticipated just 12-24 months ago.
AI is leading to massive disruption in SaaS.
But we’ll look back and see it was the best thing that happened to SaaS in a decade. Not just because it makes our software better. But because it let the Good Times in B2B software budgets roll … for another decade.
Now the tough question is this: are you truly taking advantage of this change and increase in AI spend?
How is your SaaS product leaning in here? To truly, honestly grab this new budget?
So many … aren’t. I see too many SaaS players rolling out minor AI features and basic enhancements. That’s great, but it won’t grab new budget.
