Disruptive Innovation in the Software Industry

The software industry that created AI is now being consumed by it. $160 billion in market value erased from Salesforce, Adobe, and ServiceNow this year alone. Most analysts see sector rotation. Our cross-sector analysis reveals systematic transformation that reshapes competitive dynamics across all enterprise software categories. The market has divided software companies into offense versus defense against AI. Microsoft and Oracle integrate AI capabilities and win. Traditional SaaS providers defend subscription models and lose strategic positioning. This mirrors transformation patterns we documented across 47 countries in our AI Readiness Index at Global AI Forum. Industries that treat AI as capability enhancement capture value. Those that view it as existential threat surrender market leadership. The strategic divide isn't technological. It's philosophical. Companies asking "How does AI enhance our core value proposition?" build competitive moats. Those asking "How do we defend against AI disruption?" cede strategic initiative to competitors who see opportunity where others see threat. Three sectors exhibit identical patterns. Manufacturing leaders embrace AI-integrated production systems while traditional manufacturers resist automation. Financial services early adopters leverage AI for risk assessment while legacy players focus on compliance concerns. Healthcare innovators deploy AI diagnostics while traditional providers debate regulatory frameworks. Strategic positioning determines outcomes. The software selloff creates unprecedented acquisition opportunities for enterprises with AI-first strategies. Discounted valuations plus defensive positioning equals strategic assets available at transformation prices. Policy discussions with government officials reveal similar dynamics. Nations building AI capability frameworks capture competitive advantages. Those focused on AI restriction frameworks surrender technological sovereignty to more strategic competitors. Strategic leaders ask different questions: Which defensive players become acquisition targets? How does AI commoditization accelerate in-house development capabilities? What competitive advantages emerge when software switches from subscription to capability models? Strategic clarity in sector transformation demands global perspective.

With AI app-building tools, we're on the cusp of major SaaS innovation and disruption. Here’s how I see it playing out. We’re entering an era where technology is no longer the SaaS bottleneck. After 20+ years of building products via whiteboards, feedback, Trello, etc., that wall is gone. Now, I can describe a user experience to an AI app builder like Lovable and have my initial idea generated in minutes, fine-tuned over hours—many hours. But building a great product is only half the battle. Taking it to market is critical. There are three fundamental SaaS sales motions, often combined: 1️⃣ Product-Led Growth (PLG) – Product usage generates new users, converting them into paying customers. Think Dropbox, Calendly, etc. Usually freemium, ACV under $100/month. 2️⃣ Inbound Self-Service – Paired with community-led growth, partnerships, and paid traffic. ACV ranges from $1K-$20K/year—not high enough for heavy outbound sales but sustainable with solid CAC to LTV ratios. 3️⃣ Outbound/Enterprise Sales – Robust platforms with deep integrations, ACV in the mid-five figures and up. These businesses win with strong sales teams, built on relationships and trust. Disruption will start with PLG—it’s the cheapest go-to-market approach, and AI-powered tools like Lovable make it easier than ever to build PLG applications, often with little to no funding. The attacks on established PLG companies will come from all directions. Which brings us to funding. The next generation of SaaS won’t need the same funding levels as before. A team of 2-3 can achieve what used to take 5-20 people, and in 2-3x the speed. Instead of raising $1M, they might need just $100K. Target ARR will also shift—$1M-$10M vs. $10M-$100M. Funding levels will align with these expectations. But this also means more competition since the products will be more niche. Winning will depend on getting four fundamentals right: ✅ Solve a specific/niche problem better than anyone else ✅ Build a compelling brand ✅ Nail packaging & pricing ✅ Execute the right go-to-market play What’s not on that list? Having the best tech. That’s now commoditized. Yes, partnerships and integrations matter, but true differentiation will come from execution, not technical superiority. I do believe these new companies will still need engineers but fewer and later in their lifecycle. And, I suggest engineers start working with these new tools ASAP. I'm excited to see a new wave of SaaS products built by creative entrepreneurs with minimal tech backgrounds. Personally, I feel unchained after years of watching my ideas slowly and painfully come to life on the screen.

Michael Luo just rebuilt a basic version of Docusign in 2 days. 🤯 10 months ago, I warned that SaaS photocopiers (AI powered clones of old school SaaS apps) would crush premium SaaS vendors. Today, no SaaS business is safe. Here’s how this disruption will play out in 2025 : BACKGROUND The Shifting Economics of SaaS SaaS prices are soaring: - 2024: Average SaaS prices jumped 12.8% - 73% of SaaS vendors have increased prices since 2022 Meanwhile, the cost to build SaaS is plummeting: - AI copilots and tools have drastically reduced development time - SaaS replication now takes less than a week The Opportunity: - 20K+ SaaS apps exist in the U.S. alone - $450B+ spent on SaaS in 2024 - ripe for disruption Here’s what I think the disruption will look like within 18-24 months:  1. Rise of agencies that promise lower TCO of SaaS apps Agencies specializing in copying, personalizing, building and hosting cost effective SaaS alternatives will see massive growth. With lower total cost of ownership than traditional SaaS, a significant share of the SaaS spend will shift to these agencies. If you’re a dev agency, this will be a huge growth opportunity. 2. Customized app development may even start with the enterprise clients Unlike previous disruptions, this one will influence the enterprises early on - where SaaS spend and number of seats are the highest and cost savings are the greatest. This also happens to be the highest quality revenues for most SaaS vendors. With rising AI costs, cutting SaaS expenses can be the next big opportunity in engineering teams. 3. What should growth teams at premium SaaS vendors do Growth teams need to stay a step ahead and plan out their response as buyers start exploring alternatives. Their response may include pricing strategies, use of data, higher switching costs, stronger network and platform effects. This post should be a wake up call for docusign’s (and similar companies') growth team.  4. How can premium vendors respond or thrive during this disruption Many enterprise vendors will panic and cut prices, but that won't stop the churn. Vendors that invest in Platforms and strategic communities will drive a lot of value. SaaS pricing is broken. Flexible pricing models, network effects, data flywheels and business model innovation will need to be considered to reduce churn. 5. Lower priced vendors will grow at the cost of premium vendors As SaaS buyers start to question premium pricing, they will explore not just building in house but also consider switching to lower cost alternatives. Vendors that innovate on pricing will be rewarded disproportionately. Expect a shift away from per seat pricing towards enterprise licensing or usage based pricing.   CONCLUSION: The SaaS photocopier era has begun. Premium pricing will soon come under attack as cost of replication continues to drop. Are SaaS vendors prepared to deal with this shift? How do you see the future of SaaS? Let’s discuss.