In this brave new world, your margin is AI’s opportunity. When software becomes 10x easier to build, the classic “build vs. buy” calculation shifts dramatically. SaaS (Software as a Service) margins won’t disappear overnight, but it’s just a matter of time before they begin to start shrinking and feeling significant competitive pressure.

Real SaaS Price Competition is Finally Here

Leadership teams at tech companies all around the globe will now very seriously begin to re-think paying tens of thousands of dollars a month to do a specific job with a SaaS they only half like when someone employed there can code an 80% solution in a few days time with the help of AI. The most forward-thinking tech companies early on the adoption curve are already doing this. More will follow suit.

Most companies will not want to build and maintain their own software though. But other tech-inclined people and aspiring entrepreneurs will. The engineering bar is so much lower now. The opportunity to compete is just too ripe to ignore. The path to a “good enough” product is much shorter now. A good chunk of the natural engineering moat SaaS companies enjoy is gone, and competition will be fierce.

It’s basic economics. The cost of creating software is dramatically less with AI. This will inevitably lead to the proliferation of more software – more competition – particularly in attractive high-margin SaaS. More competition creates an inevitable downward pressure on prices.

SaaS margins have been held high for a long time – even sometimes unjustifiably so – while companies that use them had little to no choice to to pay higher and higher fees because the cost of building and maintaining an alternative was always just beyond reach and only a handful of real competitors existed in the market. Those days are over now.

SaaS Will Survive This

Let’s not get hyperbolic – I am not predicting the “death of SaaS” here. There are many, many reasons why you would not want to build and maintain your own replacement SaaS application, even if you had all the skills to do it. There are also many other kinds of moats existing popular SaaS companies have, like data, network effects, brand, marketing, and distribution. Encumbents will enjoy some protection for a long time.

The SaaS model itself is here to stay, and will only get stronger with more software written by AI being built and deployed all the time.

What I am saying, though, is that the days of fat 70%+ software margins have peaked. We are on the downward slope now. The thought of paying thousands of dollars a month to send a few emails will soon be a distant memory. A laughable tale of a much simpler and unsophisticated time.

The future of software is bright, and will be more accessible than ever.