AI is making software easier to build, but so far this does not appear to be causing businesses to replace SaaS products with internally developed software at scale.
While we keep hearing that AI will reduce the value of SaaS businesses because software is becoming easier to build, so far that doesn’t appear to be the main change.
The more interesting effect we’re noticing is that AI is making it easier for existing SaaS companies to expand what they already offer.
A SaaS company which already owns the customer relationship can now build functionality that previously would have taken too long or cost too much to justify. Instead of integrating with another software provider, it can increasingly build the feature itself and sell it into an existing customer base, thus helping to expand margins as well as to differentiate.
Customers are not suddenly building everything themselves
With AI significantly reducing the amount of development work required to create relatively simple software, we’ve all heard about companies deciding to build internally rather than buy another SaaS product.
However, the difference between creating an application and operating it as a reliable business system has become a reality check for many. Companies still need to maintain the product, integrate it with other systems, secure it, update it and take responsibility for it internally, which often exceeds the cost of a simple SaaS subscription.
For most businesses, we’re noticing that buying software therefore remains easier than building and maintaining it themselves. AI may increase the number of build-versus-buy discussions, particularly among large companies with substantial internal IT teams, but it has not removed the underlying reason SaaS exists.
Existing SaaS companies can now expand faster
The bigger change we are seeing is existing SaaS companies using AI to expand into products they would previously have integrated with.
Take a vertical SaaS business already providing the main operating platform for its customers. If those customers also use separate tools for reporting, document processing or workflow automation, the SaaS provider may previously have had little reason to build those products itself.
As AI reduces that development cost considerably, SaaS providers can now build enough adjacent functionalities to keep the customer within their own platform, increasing share of wallet while removing the need for another software provider.
This is particularly powerful because the incumbent does not need to win a new customer. It already owns the relationship, understands the workflow and can facilitate integration.
For the standalone SaaS provider, the risk is therefore that the other platforms already serving its customers builds enough of the product that they no longer need to buy it separately.
To conclude…
AI is making software easier to build, but so far this does not appear to be causing businesses to replace SaaS products with internally developed software at scale. The build-versus-buy decision still includes maintenance, integration, security and ongoing ownership, not simply the initial development cost.
The more significant change is happening between SaaS companies themselves. Existing providers can build adjacent functionality faster, sell it into customers they already serve and reduce the need for those customers to buy additional products.