SaaS Disrupted Software. Agentic AI Will Disrupt SaaS.

Currently there are a lot of discussions on whether AI and Agentic AI are going to disrupt the SaaS industry.

Let us take a look at history to see how SaaS disrupted the traditional software business.

Here are two of the most prominent examples of traditional software powerhouses that were decimated by the rise of SaaS.

1. Siebel Systems (Replaced by Salesforce) 

In the late 1990s, Siebel Systems was the undisputed king of Customer Relationship Management (CRM) software. They owned roughly 45% of the market. \

• The Old Way: To use Siebel, a company had to buy expensive servers, pay millions in upfront licensing fees, and spend a year on "implementation."

• The SaaS Disruptor: In 1999, Salesforce launched with the slogan "The End of Software." They offered the same utility through a web browser for a small monthly fee per user, requiring zero hardware.

• The Result: Siebel’s leadership famously dismissed Salesforce as a "toy." However, businesses flocked to the flexibility of SaaS. Siebel’s stock price plummeted from a peak of over $100 to around $10. In 2005, they were forced to sell to Oracle for a fraction of their former value. 

  
  

2. BMC Software & CA Technologies (Disrupted by ServiceNow) 

For decades, "Big Tech" infrastructure management was dominated by a group known as the "Big Four" (BMC, CA Technologies, HP, and IBM). They sold "IT Service Management" (ITSM) software that lived on internal corporate servers. 

• The Old Way: Their software was notoriously difficult to update. If a company wanted a new version, it often took months of manual labor and consultant fees.

• The SaaS Disruptor: ServiceNow entered the market with a cloud-native platform. Because it was SaaS, updates happened automatically, and the interface felt like a modern website rather than a 1980s terminal.

• The Result:

  • CA Technologies lost so much momentum and market share that it was eventually acquired by Broadcom in 2018 (essentially becoming a legacy maintenance wing).

  • BMC Software was taken private by equity firms after struggling to compete with ServiceNow’s growth.

  • Today, ServiceNow has a market cap of over $150 Billion, while the traditional companies they replaced have largely faded from the spotlight or been carved up. 

    
    

Key Takeaway: The "Innovator’s Dilemma"

These companies didn't die because their software stopped working; they died because their business model became obsolete. They couldn't walk away from their high-priced upfront licenses to offer cheap subscriptions without "cannibalizing" their own revenue, giving SaaS startups the perfect opening to take their customers. 

Two things changed with SaaS:

1. The software delivery model changed that enabled faster innovation

2. The business model changed that made the solution accessible to more organizations and also allowed organizations to start slow.

With AI, most of the conversation is about ease of building software. This can enable more competition in the market. Also with this changed economics the new age competitors can offer different pricing points. But, this is not the main disruption; because at scale the more dominant cost of software is operations: sales, support, engineering operations.

The main disruption with Agentic AI is the usage model of software is changing. Now Agents will use the system of records in addition to employees. The pricing model of SaaS was based on human usage and it had two factors:

1. There is an implicit assumption on how much the human employee can use the software and so how much load etc it can create on the system.

2. There is also an implicit assumption on how much the human employee costs in salary and other expenses for the enterprises. As long as the per seat cost was a small fraction of the cost of the employee it was budgetable.

Both of these above assumptions are being challenged by Agentic AI: Agents can do much more and 24x7 and cost of Agents for enterprises is much less compared to the human employees.