I recently found myself in a room full of SaaS founders discussing the risks that generative AI (GenAI) poses for their companies. I couldn’t help but wonder how, as an industry, we’ve spent so much time talking about how AI is going to replace humans, how GenAI is going to throw people off their jobs and destroy entire job groups. As a community, we’ve spent very little time discussing how SaaS-first companies with AI features get disrupted by AI-first SaaS companies that have started on their journey many years after.
AI-first companies that have put GenAI at the forefront of their products have changed expectations from the customer entirely. Just like with SaaS products, when you could open a UI and key in data, with AI-first tools you can create a workflow, generate insights or transfer data with a simple query or instruction to the system. With AI-first tools, we’re creating a generation of companies that are rewiring the customer’s expectations of what software does. “I ask and I get” vs. “I open a tool, do a lot of things, press a lot of buttons, enter a lot of data, then create rules for that data to be plotted a certain way and get graphs which I then have to interpret”.
Customers are rapidly understanding that they can do the same job an order of magnitude quicker, with more information, more decoded data at their fingertips than ever before. With AI, ‘the hunt for instant everything’ and ‘more everything’ is now shifting from the content and social consumer industry to the enterprise industry.
As a country, we’re just making the shift from services to SaaS. Incredible work by communities over the last decade or two has helped us reach 3500 funded SaaS companies in the country with a 2% representation of the overall global SaaS industry and a growth from 2.6 to 7B in revenues in the last 2 years. However, we’ve always been thrown in the bucket of operational advantage – read cheap. The race to win the ‘cheap’ game is a race to the bottom of the barrel in every market. Sooner or later everyone has the same advantages of server optimization, talent and more as the labor markets and compute costs even out with growth in the markets. With the AI-first rush globally, the problem has shifted significantly.
The greatest danger for Indian SaaS today lies in staying SaaS-first and not rapidly shifting their software to an AI-first, automation-first approach to creating workflows and enabling outcomes of jobs. The SaaSBoomi India SaaS report reveals that approximately 60% of CIOs expect to cut new spending on software, and 80% of CIOs in large enterprises plan at least 15% reduction in discretionary software spend. More than 50% of CIOs say they are likely to consolidate vendors in the next three years, favoring bundled product suites from a single provider.
On one hand, the world of AI tools and software will get commoditized faster than we can imagine. On the other hand, the aging world of enterprise software that is not AI ready will continue to shrink. As a first strategy, it is the perfect time for young India SaaS to sit up and re-tool, re-imagine their products and their business models without the dangers of huge pivots.
Secondly, it is the perfect time for Indian founding talent to go down the route of infra-first, vertical-first, data-first, and security-first companies in SaaS. With a strong AI-led product motion, these are foundational categories that allow enterprises to build on top of them or integrate with their deeply connected workflows.
