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SaaS is Back Baby!!
Last week felt like a major vibe shift for the SaaS industry. Maybe SaaS isn’t dead after all? The SaaSpocalypse is over and investors just got it wrong…right?
It definitely looks that way based on public software companies’ stock performance last week (and over the past few months). Bessemer’s cloud index is up 55% in 6 months and it’s back to levels not seen since early 2022. SaaS has even outperformed the semiconductor industry over the last 6 months 🤯
Or…is this just a “dead cat bounce”?
Not all software companies are the same…
The SaaSpocalypse was never going to be evenly distributed. Investors treated all SaaS names like AI was going to send them all to zero by tomorrow and now we are doing the same thing on the way up (like they will all be fine).
I have gone through lots of SaaS renewals in 2026 so I put together the 10 biggest reasons why I have said “I am churning” this year. The companies that grow despite these threats (or even turn these threats into advantages) will be just fine.
10 Threats to SaaS Companies
1. Increasing AI Spend Squeezes the SaaS Budget
Every CFO is dealing with the same thing: If AI spend increases (which it probably has), then something else in the budget needs to decrease. Only exception is if you are accelerating revenue by a lot….then maybe you can have both.
AI may indeed reduce headcount, but you better believe that every CFO is pushing on existing SaaS spend as well.
Boards/investors won’t have much patience for higher spend because of AI but no change in revenue growth and/or efficiency…
2. The Value I Get From Claude Broke My Brain On ROI
You want me to pay 2x what we pay for Claude for your little workflow tool?
This makes everyone question how much they are paying for all their tools. It certainly has made me push hard on pricing (both new vendors and renewals). My bar for value relative to price has skyrocketed…
Related point below…And is the reason a lot of companies are starting to see huge price deltas. Are you selling to someone that is AI-pilled or an AI-noob?
3. Exponential Growth In Competition
AI has created an explosion in competition. Many of these competitors are new but AI has accelerated their products to get to feature parity really fast.
And there are two big things that can give them an advantage:
AI-native built so AI agents often work better with them
Built with less capital and more efficiently so they can be more price competitive
And threat #4 (below) has made the increased competition an even bigger problem for the incumbents.
4. Decline In Switching Costs
It’s becoming so much easier to churn. A few years ago I would have hated to churn off most finance tools because it was such a headache to switch vendors. Long implementation, costly consultants, lots of risk in moving, integrations, etc.
It’s so much easier today.
Most of us don’t have the patience for a long implementation anymore so it’s become a priority for vendors (if you have a long implementation you are ngmi).
5. Vendors Keep Expanding Into Each Other
Most of my vendors have massively accelerated and expanded their roadmap because of AI (as they should). This has meant that several of my vendors’ products are starting to overlap.
For example, one of my larger accounting vendors added a tool (for free) that I was previously paying $50K/year as a point solution…Was it as good? No…but it was good enough. Hard to justify $50K when I got something 80% as good for free.
AI is accelerating roadmaps and vendor surface area. The benefit will accrue to the stickier core tools.
6. Vibecoding
The mere threat of vibecoding or doing something natively in Claude is often enough to get your vendor scrambling to get you a “special deal”. I have played this trick a couple of times…
But sometimes it’s more than a threat. I am not on team “vibecode all your internal tools and therefore SaaS valuations are going to zero”. But…building internally can make sense when customization is important for you. The customization possibilities are one of the biggest reasons in my opinion to build internally.
Pro Tip: If you just want better pricing, then start the conversations early (4+ months before renewal). Then the vendor has plenty of time to panic, escalate, get pressure from the board for their high churn, etc so they make “special exceptions” on pricing.
7. New Pricing Model Is Stupid
I have seen a lot of pricing model changes in my vendor renewals this year. Everyone is trying to figure out how to price in an AI usage-based world.
It’s hard. There will be a lot of pricing experimentation.
But…on the buying side, my initial thought when I hear “We have a new pricing model” is “Great, how are you trying to screw me?”
The vendor’s job is to show:
We are not trying to screw you (this year or next year as you scale)
Here is how pricing works and why it makes sense (should be easy to understand)
This is how you can forecast it
Fail at any of these (but especially the first one) then I am looking at alternatives.
8. AI Has Changed What I Value
AI has changed what we value from our software. For instance, UI matters a lot less today. I am logging into my finance tools less every day. I am relying more on AI agents or working directly in Claude to interact with my software tools.
Does your tool play nice with AI agents and Claude/ChatGPT?
I am probably going to churn from any tool that doesn’t have a prebuilt MCP today.
9. Vendor Not Accelerating Product Roadmap
I really don’t like taking demos. But now I tell my team that we need to occasionally take demos (especially before annual renewals) to see what else is out there.
It takes 30-60 minutes and helps us better understand what others are doing with AI. We churned from one legacy vendor after we discovered how much more we could do with a more AI-native one.
In the old world, SaaS renewals felt almost guaranteed because no one wanted to move. But that ARR feels a lot less “recurring” today because at every renewal I am considering other options.
10. AI Reduces Headcount/Seats
Obviously.
Everyone has heard enough about this so the only thing I will add is to make sure you don’t make stupid pricing changes (#7) because you are rushing to get out of the seat business.
Footnotes:
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*Disclosure: Nothing discussed in this post is financial, tax, or investment advice.