Two-thirds of top SaaS companies won't survive the AI age, an analyst says. Here's how to tell who will win and lose.

As artificial intelligence (AI) reshapes the tech landscape, a significant shift is on the horizon for software-as-a-service (SaaS) companies. Renowned venture capitalist Marc Andreessen once claimed that software would dominate the world. Now, with the rise of AI, many of today's leading SaaS firms could be at risk of becoming obsolete. Analyst Pat Walravens from Citizens has raised concerns that approximately two-thirds of the current top SaaS companies may not survive this AI-driven transformation. Drawing parallels with the past, he noted that during the cloud era, less than half of the top 20 software firms from 2000 remained relevant. Just as SaaS disrupted traditional software companies then, AI is poised to challenge the SaaS giants of today. Historically, companies like Sun Microsystems and PeopleSoft faded into obscurity as cloud solutions took the lead. While they didn't go bankrupt, they were often acquired or absorbed by other entities. Walravens categorizes software into two main groups: infrastructure and applications. He believes infrastructure firms—those managing back-end operations—are likely to fare better. For instance, companies like Twilio have recently seen stock surges as businesses transition to AI-driven communication solutions. According to Bandwidth CEO David Morken, the effectiveness of AI is closely linked to its foundational infrastructure. He emphasized that an AI agent's intelligence is only as robust as its ability to connect with the real world. Twilio's chief product officer echoed this sentiment, stating that operating at the infrastructure layer has become increasingly crucial as AI becomes integrated into customer interactions. Conversely, application companies face tougher challenges. These firms, which develop software for specific tasks like payroll or project management, have seen their stock prices drop significantly in recent times. Walravens pointed out that while some of these companies may have AI-enhanced segments, they still risk being disrupted if they cannot adapt effectively. Companies that have been proactive in adopting AI prior to this shift are more likely to thrive. For example, Navan has gained traction by modernizing corporate travel solutions with AI, positioning itself as a more agile alternative to legacy systems. Michael Sindicich, Navan's president, highlighted how traditional corporate travel tools have become outdated and cumbersome. Investors can apply a simple litmus test to gauge a company's prospects: those with organically growing revenues are likely harnessing AI effectively. Other indicators include the business model and how easily a product can be replicated. Walravens warned that firms using traditional seat-based pricing models may struggle compared to those with consumption-based frameworks. Asana and HubSpot, two companies facing pressure in the current landscape, are adapting to the AI revolution. Asana emphasized its role in enhancing operational efficiency, while HubSpot's leadership acknowledged the importance of embracing AI for software development. Despite the challenges, many large SaaS providers maintain trust with their clients, who often prefer to stick with established vendors for sensitive data management. In this rapidly evolving environment, the survival of SaaS companies hinges on their ability to innovate and integrate AI into their offerings. The coming years will reveal which firms can successfully navigate this transformative era.