SaaS is getting disrupted by AI, but we are “over exaggerating it”: Gartner

Gartner explains why the SaaSpocalypse it isn’t all doom and gloom as leaders have made it out to be.

The death of SaaS by AI or more aptly known as the “SaaSpocalypse” is here, but one Gartner analyst noted that it isn’t as scary as leaders have made it to be.

Speaking at a media roundtable at the Gartner Data and Analytics Summit in Sydney, Arun Chandrasekaran, distinguished VP analyst believes SaaS is being impacted by AI, but organisations may be “over exaggerating” the impact of AI and SaaS in the near term.

"The SaaS providers do have moats, for example, domain knowledge and domain data is a moats that the SaaS companies have, very tight workflow integration is another moat that the SaaS companies have,” he said.

Chandrasekaran noted that many of these SaaS companies, particularly the larger ones, have built a lot of capabilities around compliance and regulations that enterprises deeply care about.

[These companies] are not willing to overthrow SaaS because they care about all of these capabilities, and more importantly, a lot of enterprise buyers also tend to be a little conservative and they value these capabilities,” he said.

“Suddenly throwing away a SaaS ecosystem seems like too risky for them.”

However, Chandrasekaran argues that Achilles’ Heel for SaaS vendors is their pricing models.

“Increasingly their pricing models, which are primarily seat-based or user-based, is coming under a lot of threat,” he said.

Chandrasekaran said enterprises are beginning to question user-based pricing models, when AI agents are orchestrating workflows independently from human beings.

He said organisations are thinking about new types of pricing models.

"Many other large providers are struggling to balance, Wall Street expectations, or market expectations, I should say, more broadly, mixed with customer expectations,” he said.

“Many of these new pricing models, for example, we are starting to see many of the startups introduce pricing models around outcome-based pricing or workflow-based pricing, and for the big SaaS companies, these pricing models are cannibalistic to their existing revenue models.”

Chandrasekaran noted that a lot of these companies are figuring out what is the most optimal balance.

“[It’s] between giving customers what they want, but at the same time retaining existing gross margins and continuing to build a profitable and a high margin business for the future.

“That's a dilemma that we see with a lot of SaaS companies,” he ended.