How Will AI Affect SaaS Startups?

Artificial Intelligence is Being Used as an Accelerant for Software Development of Any Kind

Hi Jeff, it is wonderful to have you back to guide us through these turbulent waters. I was a lifetime member of your last gig, and will be anxious to join your new one.

You have stated many times that SaaS (Software-as-a-Service) was one of your favorite Day One approaches, as it did not require heavy capital on the part of the small startup companies. I own stakes in many of these. 

Recently, you have been educating us on AI, and how quickly it can accomplish tasks that previously required so much time. What is your opinion of how this will affect SaaS startup companies? Can't AI be used to pattern after a new company's approach and develop a better version quickly? — Paul O.

Thanks Paul, I’m glad we’ve reconnected.

You’re definitely thinking about this the right way. Artificial intelligence is software after all. And it is being used as an accelerant for software development of any kind.

At the moment, there are three broad categories of companies working with AI:

• Companies that are building the core AI “engines.” These are companies like OpenAI that are building large language models (LLM) that have been productized into something like ChatGPT.
• Companies that are developing forms of artificial intelligence used for application-specific purposes. These are companies like Palantir and C3.AI.
• Companies that are using the foundational AI being designed by other AI companies to develop a customer-facing product powered by AI. For example, Microsoft, Duolingo, Stripe, and Khan Academy all use GPT-4, OpenAI’s latest LLM, to power their own products.

The big overarching trend of 2024 is basically AI applied to everything. Companies are scrambling to adopt AI-powered tools that can simplify time-consuming tasks, reduced costs, and improve business operations.

And there are countless companies that are using these core AI engines to develop new AI-powered services in hopes of capturing millions of users and carving out a dominant space in their markets.

Almost all of these business models are essentially software-as-a-service, subscription-based. 

And I’m sure that some of the big, cash-rich companies that have made their fortunes harvesting our data — like Alphabet (Google, YouTube), Meta (Facebook, Instagram, WhatsApp), Microsoft (Bing, LinkedIn) — will offer “free” AI-powered digital assistants that will have incredible utility. But their business model will be collecting all of our data, storing it, and selling access to it to advertisers

Always remember, if the product is free, it’s almost certain that you’re the product.