'AI is an enormous tailwind for software companies': 5 tips for adapting to the new 'SaS' model

Follow ZDNET: Add us as a preferred source on Google.ZDNET's key takeawaysThe SaaS apocalypse is over, says a leading VC. Salesforce is doing just fine, thank you.Hybrid firms providing both software and services are on the rise.The software-as-a-service approach may be fading, but what's going to take its place? It could be a whole new level of SaaS.The so-called "SaaS apocalypse" is over, venture capitalist Orlando Bravo proclaimed in a recent interview with CNBC. Rather than being a software killer, "AI is an enormous tailwind for software companies," he opined. "I can tell you in so many ways why AI is the biggest thing to happen to the software industry now. Software companies can move to a completely new level of business automation by automating some parts of human judgment."Also: How Workday and other software providers plan to survive AISalesforce.com, the poster child of SaaS, doesn't appear to be feeling any apocalyptic pain, either. In May, the company announced revenue of $11.1 billion for its most recent quarter, up 13% year over year. Boosting its presence in the software space, the company recently acquired customer service software company Fin, formerly known as Intercom, for $3.6 billion. In the meantime, while IBM just experienced a brutal quarter, its software side saw 5% growth. The SaaS model may not be fading as we once thought, but it is evolving into a new form that was explored in an analysis by Saurabh Gupta and Phil Fersht of consulting firm HFS. Looking at the state of things to come, the current wisdom that SaaS and IT service providers will fall to the AI wave is misleading, they argue. A hybrid approach to software deliveryA funny thing happened on the way to the SaaS apocalypse -- enterprises aren't cooperating. The AI-replacing-software scenario "only works if enterprises can actually deploy AI at scale, and today they simply cannot," Gupta and Fersht observe. "Until organizations resolve their technology, data, process, and talent debt, AI will remain trapped in pilots and proofs of concept rather than fundamentally changing how businesses operate."The SaaS apocalypse was more on Wall Street's mind than Main Street's, they suggest. Tech investors and their gurus have declared SaaS dead, but Main Street businesses are still figuring out how AI will fit into their operations and will likely stick with SaaS solutions for some time to come to keep things moving. Also: How the rise of AI-native software could give SMBs enterprise-level powerWhat is coming is a hybrid approach to software delivery -- which Gupta and Fersht define as "services-as-software." This is marked by a convergence of services and software firms. "Services firms are increasingly becoming software businesses, software companies are moving deeper into implementation and business transformation, and both are converging on the same outcome-based economic model, even if investors have yet to recognize it," they state. IBM is a good example of a converged software and services supplier, they state. IBM has become "a software and AI business that happened to own a consulting arm, rather than a consulting business trying to sell AI." Look for service and software firms "that combine AI with deep client relationships, transformation expertise and privileged access to enterprise systems," they point out.5 ways to adapt to services-as-softwareThey offer the following pieces of advice for adapting to this new services-as-software model:Treat enterprise debt as an up-front business issue. Measure, prioritize, and fund technology, data, process, and talent debt "with the same discipline you apply to capital investments."Focus on business outcomes, not pilots. "If an AI initiative cannot demonstrate meaningful commercial impact within 90 days, question whether it deserves further investment. Every failed pilot delays the transformation you're actually trying to achieve."Buy outcomes instead of effort. Think business value -- not licenses, tokens, or full-time equivalents. "If a supplier cannot explain how they improve your P&L, they are selling technology rather than transformation."Align your AI and services partners. "If they are working independently, you will pay for the disconnect."If you're with an AI-native firm, earn trust before expecting scale. "Every enterprise deployment that delivers measurable value strengthens your long-term valuation far more than another funding round."Also: Linus Torvalds puts his foot down, tells anti-AI programmers to 'fork it'And don't count SaaS, software, or service firms out, they add. These businesses are "generating tens of billions of dollars in annual revenue, serving the world's largest enterprises under multi-year contracts, growing at roughly 5% a year, and consistently delivering operating margins in the 15% to 20% range. They are highly profitable, generate significant cash, and sit at the heart of the global economy. Wall Street is valuing them as though those advantages are rapidly becoming irrelevant."