The End of SaaS as We Know It: A Founder and Investor's Take on the Shift in Software's Role
The End of SaaS as We Know It: A Founder and Investor's Take on the Shift in Software's Role
For more than a decade, Software as a Service (SaaS) was the crown jewel of the tech world. The promise of recurring revenue, scalability, and predictable customer lifetime value made SaaS the go-to business model for entrepreneurs and investors alike. But in recent months, whispers about the decline of SaaS have grown louder, spurred by provocative opinions, like a recent tweet from Sam Lessin of Slow Ventures, and discussions across VC blogs and LinkedIn threads. What was once a foregone conclusion—the dominance of SaaS—now seems to be under threat. As both a founder and investor, it’s critical to understand what’s really happening, and more importantly, what comes next.
The SaaS Dream: Too Good to Be True?
From an investor’s perspective, SaaS was a dream come true. The recurring revenue model meant predictable growth and financial forecasts, making SaaS companies a beacon for venture capital. Founders, on the other hand, saw SaaS as the ultimate path to build a scalable, sticky business. Theoretically, once you signed up a customer, they were yours for life—or at least a very long time.
However, in practice, customer acquisition costs have ballooned, competition has intensified, and the assumption that customers would stick around indefinitely is proving overly optimistic. The allure of "infinite" customer lifetime value (LTV) was just that—an allure. Many companies are discovering that keeping a customer isn't nearly as easy as getting one. Price sensitivity, competition, and rising demands for customization are eroding the long-term value founders hoped to extract from each customer.
From the investor's viewpoint, it's becoming clear that the market has been over-saturated. When you invest in a SaaS company today, you're not just betting on the software—you're betting on their ability to constantly reinvent themselves to keep customers engaged and differentiate from the hundreds of alternatives.
The Commoditization Crisis: Why SaaS Value is Dropping
One of the biggest challenges facing SaaS businesses today is commoditization. What used to be proprietary and valuable—the code itself—has become increasingly easy to replicate. With the rise of AI and more accessible development tools, the barriers to entry have lowered significantly. Startups can now launch feature-rich products with far fewer resources than before, flooding the market with alternatives that look and feel similar.
For founders, this commoditization creates a tough environment. How do you convince customers that your software is worth paying for when cheaper—or even free—alternatives are only a click away? For investors, it’s a red flag. If your competitive advantage can be undercut by a smaller, faster-moving competitor, your runway for success shortens dramatically.
The democratization of software development means that innovation alone is no longer enough. As an investor, you now need to evaluate a startup’s long-term defensibility, not just its technical prowess. For founders, this means it’s no longer sufficient to simply have the best software—you need to have a compelling business model that extends beyond the code itself.
Product-Led Growth: Not the Silver Bullet
Product-Led Growth (PLG) has been a buzzword in SaaS for years, with companies like Slack and Zoom becoming poster children for its success. The concept is simple: let your product sell itself. While this works well for highly viral or consumer-friendly products, it's been a struggle for many B2B SaaS startups, where enterprise sales cycles are long and complex.
For founders, the allure of PLG can lead to tunnel vision. Yes, it’s great when your product drives adoption on its own, but relying solely on PLG can backfire if you don’t pair it with a robust sales strategy. Many SaaS companies are learning this the hard way, burning through cash trying to get users to convert through PLG alone.
As an investor, PLG-focused startups can be high-risk. The idea that "if you build it, they will come" doesn’t hold up as well in today’s crowded market. Product-Led Growth might work for some, but as software commoditizes, the "product" itself loses its power to differentiate. Investors now have to ask: is this company’s growth sustainable, or are they hitting a ceiling with PLG?
A New Era: Software as a Business Weapon, Not a Product
So where does this leave us? If SaaS is losing its luster, what’s the next big opportunity for founders and investors? Increasingly, we’re seeing a shift toward using software as a tool to transform other businesses, rather than selling software as a standalone product. This is software not as a service, but as a weapon—a means to drive significant improvements in real-world businesses.
For example, Klarna’s recent decision to sever ties with enterprise SaaS providers like Salesforce and Workday is emblematic of this shift. Rather than paying for external SaaS solutions, Klarna is investing in building its own AI-powered tools to streamline operations. From the outside, this move might look like a cost-saving measure, but it’s much more strategic than that. Klarna is using its internal software to gain a competitive advantage, reduce reliance on third-party vendors, and ultimately control its own destiny.
For founders, this model presents a different kind of opportunity. Instead of trying to sell software to other companies, you could use your software to improve businesses you own or operate. The real value here isn’t in the software itself, but in how that software can transform a business to be faster, more efficient, and more profitable.
From an investor’s perspective, this is incredibly appealing. Rather than backing yet another SaaS startup hoping to scale through subscriptions, investors can look for businesses using technology to disrupt traditional industries. The risk is lower because these companies aren't selling commoditized software—they’re using it to gain an edge in markets with real, tangible value.
The New SaaS Playbook: How to Adapt
For both founders and investors, the message is clear: SaaS, in its traditional form, is no longer the guaranteed path to success. To survive and thrive, you need to rethink the role of software in your business model.
Founders should explore new ways to integrate software into real-world operations, using it to drive meaningful change in industries that haven’t fully embraced digital transformation. For investors, the key is to look beyond software as a product and toward companies using technology to create defensible, long-term value.
In this new paradigm, the winners won’t just be those who can build the best software. The real winners will be those who can leverage software to dominate entire sectors of the economy, turning technology from a product into a weapon.
Conclusion: A New Frontier for Founders and Investors
The fall of SaaS doesn’t mean the end of software’s importance in business. On the contrary, software is more critical than ever—it’s just being used in new and more strategic ways. The companies that recognize this shift and act on it will be the ones that define the next era of tech.
For founders, this means looking beyond recurring revenue models and thinking about how your software can drive real, tangible improvements in business operations. For investors, it means seeking out companies that are using technology not just to sell a service, but to transform industries.
In the end, the decline of SaaS as we know it could open the door to even bigger opportunities—both for those building the next generation of tech and for those investing in it. The SaaS dream may be over, but the future of software is just getting started.