Perspective on SaaS providers

 

The narrative that “AI will make SaaS obsolete” misses the real shift. AI isn’t replacing SaaS, it’s rewriting its economics. Let’s examine it in little bit detail.

• From Features to Outcomes: Traditional SaaS sold tools you operate. AI-native platforms deliver autonomous execution. Agents don’t just assist—they generate leads, draft outreach, optimize campaigns, and run workflows end-to-end. Value shifts from “what the software does” to “what it delivers.”.

•  Pricing Models Are Resetting: Per-seat licensing loses relevance when one AI agent replaces multiple users. Expect hybrid structures (subscription + usage + outcome-based) and tighter pressure on revenue predictability.

• Rise of AI-native competitors: There will be two classes of SaaS providers. Incumbents – tweaking the existing offerings to accommodate AI and new players – developing AI native systems from scratch. If incumbent do not overhaul SaaS architecture in big way, they may become glory of past.

•  The “Build In-House” Mirage: AI slashes dev costs, tempting mid-market teams to ditch vendors. But TCO, compliance, security, and ongoing maintenance will likely push many back to established SaaS ecosystems.
•  Consolidation & Verticalization: AI will compress “SaaS sprawl.” Horizontal platforms face margin pressure, while vertical/specialized providers with proprietary data and deep workflow integration will strengthen.
•  GTM Still Dominates Cost Structure: AI accelerates engineering, but sales, marketing, and enterprise trust-building remain the largest cost centers. Code is cheap. Distribution and adoption are hard.
•  Agent Reality Check: Non-deterministic outputs and evaluation complexity mean AI is currently a powerful automation layer—not a full replacement for mission-critical systems. Governance and quality control remain non-negotiable.

 In conclusion, large incumbents will survive, but “seat growth” will slow, pricing power will compress, and AI-native challengers will redefine categories. The new competitive moat isn’t features or code, it’s workflow ownership, domain expertise, and outcome accountability..

What do you think!!!

Is the era of the 'Best-of-Breed' giant over? Why the hyperscale oligarchy is coming for Salesforce, SAP, and the rest of the independent enterprises?

 

The answer is messier than either or. We’re heading toward a stratified market where both thrive, but in fundamentally different ways

Short answer: hyperscalers will dominate infrastructure and primitives, but they will not own the entire enterprise stack. There is still room for independent players, but only if they operate in very specific lanes and avoid pretending the old model still works.

Here’s an unsentimental breakdown:

1. What hyperscalers actually win (and why)

Hyperscalers (AWS, Azure, GCP) have structural advantages that compound:

A. Capital + utilization flywheel

• Massive capex amortized across millions of customers
• Better utilization → lower marginal cost → more investment
• No independent vendor can match this curve

Result:
Compute, storage, networking, and AI infra become utilities.

B. Control of primitives

Hyperscalers own:

• Cloud Infrastructure
• Compute
• Storage
• Observability & Monitoring
• Identity, Access, and Security Primitives
• Data Warehousing & Core Analytics
• Developer Platform & Runtime
• AI runtimes

These are horizontal, non-negotiable layers.

Once primitives are owned, everything above is pressured.

D. Developer Platforms

Developers follow gravity and hyperscalers are a new shiny thing on the horizon

• IDE and allied tools
• Container orchestration
• API Gateway
• Low-code development will entice non-programmers into programming
• Workflow orchestration
• Ad-hoc Platform integration

E. Distribution power

• One-click procurement
• Integrated security and compliance
• Enterprise trust at the CIO level

Result:
Anything that looks like “undifferentiated plumbing” gets absorbed.

2. Where hyperscalers fail (systemically)

Hyperscalers struggle with deep, opinionated domain-specific software – producing polished products.

Not accidentally but structurally.

Why:

• They optimize for breadth, not depth
• Products must serve incompatible customer needs
• Internal incentives reward infra leverage, not domain mastery
• Regulatory risk pushes them toward neutrality

This creates a ceiling on:

• ERP nuance
• Industry-specific workflows
• Mission-critical business logic
• High-stakes compliance interpretation

Hyperscalers ship platforms. Enterprises run businesses.

Example: AWS has likely launched over 10 database services, but enterprises still pay Snowflake billions because Snowflake understood data warehouse users’ workflows in ways that AWS didn’t bother to. The hyperscalers ship features; independent vendors ship solutions.

3. The survivable lanes for independent giants (Oracle, SAP, Salesforce, etc.)

Independent enterprise giants survive only where all three conditions hold:

1. Domain lock-in is real, not contractual

• Understanding of local tax laws and continuous updation
• Own the workflows that run actual businesses - payroll, financial close, procurement, HR processes, Sales cycle, etc.
• Industry regulations (healthcare, utilities, banking, insurance, defense, etc.)

If the cost of being wrong is existential, not inconvenient, hyperscalers back off.

2. The product encodes institutional knowledge

Software that embodies:

• Decades of edge cases
• Legal interpretations
• Audit logic
• Process memory
• Internal politics embodied as organizational structure

This is representation learning, not CRUD.

Enterprise software is deeply embedded in work culture and politics.

3. Switching costs are cognitive, not technical and/or financial

APIs are easy to rewrite.
Mental models are not.

If users think in your system, you’re defensible.

4. Enterprise Software vendors: obsolete or underestimated?

Enterprise Software vendors are not dead but narrowing.

Where Enterprise Software vendors still win

• Regulated enterprise workloads
• High-scale transactional systems
• Enterprises that value predictability over innovation

Enterprise Software vendors’ strength is not agility; their invariant-ability.

Where Enterprise Software Vendors lose

• Developer mindshare
• AI-native workflows
• Anything that smells like commodity infra

5. The new equilibrium (2025–2035)

The enterprise stack is splitting into three layers:

Layer 1: Utilities (hyperscalers)

• Compute
• Storage
• Networking
• AI runtimes
• Security primitives

Winner-take-most.

Layer 2: Platforms (contested)

• Data platforms
• Integration
• Analytics
• Workflow engines

Hyperscalers pressure here but don’t fully own it.

Layer 3: Systems of Record & Judgment (independent giants)

• ERP
• Financials
• HR
• Industry-specific cores

This layer cannot move fast without breaking reality.

That’s Enterprise Software vendors’ natural habitat.

6. The real threat is not hyperscalers - it’s collapse via false grokking

Independent giants don’t die because hyperscalers kill them.

They die because they:

• Mistake contracts for moats
• Optimize sales over learning
• Ship abstractions divorced from real workflows
• Stop encoding new reality

Hyperscalers apply pressure.
False grokking pulls the trigger.

7. The absorption heuristic (use this yourself)

Ask four questions:

1. Is correctness universal or contextual?
   Universal → hyperscaler
   Contextual → independent
2. Does value increase with scale or judgment?
   Scale → hyperscaler
   Judgment → independent
3. Is the buyer optimizing cost or risk?
   Cost → hyperscaler
   Risk → independent
4. Can failure be rolled back safely?
   Yes → hyperscaler
   No → independent

If you answer “hyperscaler” to 3+ of these, absorption is inevitable.

8. Final verdict

The future of enterprise software is not owned by hyperscalers, but it is bound by them.
The independent giants that survive will be those with genuine moats the hyperscalers can’t easily replicate: deep vertical expertise (Veeva in pharma), workflow lock-in (ServiceNow for ITSM), or network effects (Salesforce’s AppExchange ecosystem). They’ll increasingly run on hyperscaler infrastructure while providing the opinionated layer on top.

What’s genuinely threatened is the middle - companies selling undifferentiated infrastructure or horizontal tools without strong moats. Why buy a standalone monitoring tool when each hyperscaler offers something 80% as good that’s deeply integrated?

The future probably looks like: hyperscalers own the infrastructure and broad horizontal services, independent giants own the high-value vertical workflows with real lock-in, and a healthy ecosystem of specialized vendors serves niches too small for hyperscalers to care about.