Once an absolutely dominant sector born out of the fire of rising CRM technology, Software as a Service (SaaS) transformed the way businesses handled their data, services, and workflows. Now, 25 years on, SaaS is firmly past its glory days.
Whether you believe SaaS is dead, on the decline, or just undergoing a restructure, the data speaks for itself. It is data that has analysts, stakeholders, and experts alike in an interesting position: adapt to the rising trends or be left in the dust.
Saas: What’s the Real Status?
Earlier in June, Jamin Ball, a partner at Altimeter Capital, reported that the aggregate cloud software market just delivered its worst quarterly performance in years. More specifically, a 29% year-on-year (YoY) decline for the SaaS market according to the Q1 2025 results.
This comes after the market experienced a brief resurgence in Q2 2024 with 50% YoY growth, before the sobering outcome of this year’s Q1, painting a clear picture of the market’s instability.
Jason Lemkin, the founder of SaaS community SaaStr, explained that these numbers only go to confirm what many experts in the field have been saying for quite some time.
“The aggregate numbers tell us that the SaaS gold rush is behind us,” he said. “We knew that. Outside of AI-fueled spend, belts are still tightening.”
What’s Causing the Decline?
A number of factors are driving the SaaS market’s decline, including – and this should come as no surprise – a large majority of both budgets and time being dedicated to AI ventures.
Jason claims that many companies are hesitant to invest in traditional CRM/SaaS solutions as they’re holding out in hopes of the right artificial intelligence solution to come along, and this is likely exactly where these incremental budgets are going.
Fortune recently reported that agentic AI spending could reach $155B by 2030, signaling that global leaders are eager to invest in hopes of achieving AI-powered ROI. This is the case despite McKinsey reporting that although 78% of companies are using generative AI, 80% see “no material earnings impact”. This will likely change as AI, especially agentic AI, matures, but it seems that many companies are still looking to take the plunge.
Outside of AI spending, other factors, including market saturation, economic uncertainty, and slower new customer growth, are also playing a part in SaaS’ declining impact. For many companies, digital transformation has either been completed or is in the works, and they’re being much more selective over software investments. This kind of decision-making is only made harder in a market that is now very oversaturated with SaaS technology.
What About Salesforce?
Perhaps surprisingly, Salesforce has not recently been experiencing this level of decline. In fact, the company’s latest financial results (Q1 FY26) signaled positive growth – up 8% YoY and 9% in constant currency (CC) to be exact.
It is no secret that Salesforce has pushed full steam ahead with its AI efforts, solidifying that incremental budgets are indeed being funneled into that space. For Salesforce, that has seemed to have paid off, with the cloud giant’s “Data Cloud + AI” initiative’s annual recurring revenue (ARR) totalling over $1B in Q1 – an increase of 120% YoY.
For Salesforce and its investors, these results have likely come as a slight relief. Around this time last year, the cloud giant’s stock dropped from $268.69 at the start of May to a bleak $218.01 on May 30 after it had fallen short of its revenue targets for the first time since 2006.
What Does This Mean for Businesses Going Forward?
The implications that this will likely have for business leaders, especially in the B2B space, will force them to not only reinvent the wheel, but also adapt in ways that could lead to entire value and time restructures.
For one, customer success has never been more important. Customers expect more and more, and with all the available choices of software solutions, they can be much pickier too. Pricing strategies must evolve – volume-based growth is no longer the token to rely on, so a bigger focus must be put on value-based pricing and finding ways to increase average contract values.
Ben McCarthy, the Founder of Salesforce Ben and an Ecosystem Advisor, agrees that the solution lies in finding value in a way that doesn’t depend on customer counts.
“A reduced workforce might reduce the number of seat-based licences, but then provide an opportunity for usage-based pricing with AI,” he said.
He also explained that vendors like OpenAI or other LLMs have the potential to ruin some of the competition, especially if they can integrate tools like Gmail, ChatGPT, or Gong to further functionality all on one platform.
What Does This Mean for Salesforce Going Forward?
Based on recent results and product innovations, Salesforce appears to have firmly established its path forward in the changing SaaS landscape, and that is with AI.
Its proprietary offering, Agentforce, has not existed without uncertainty and perhaps controversy, but its goals have been outlined from the start: to enable their customers to deliver higher-quality, intuitive, round-the-clock experiences to their users.
SaaS has moved beyond just being a neatly packed software offering – it needs to offer more. McKinsey & Company reported that two-thirds of millennials expect real-time customer service, and three-quarters of all customers expect a consistent cross-channel service experience, which, at a time when budget constraints are the reality for most companies, seems unachievable without the intervention of something like AI.
If Salesforce can deliver on its bold Agentforce goals and provide its customers with more intuitive features, stronger support, and a more personalized experience, then it will continue to be at the forefront of the SaaS movement.
Here’s How to Stay Ahead
SaaS may be on the decline, but like with most trends, it doesn’t signify a complete dead-end. According to Jason Lemkin, companies will need to adapt to this “new reality”, which, if they can do so, will lead them to paths of opportunity.
“The key is recognizing that the playbook has changed – and changing with it,” he said.
As SaaS growth slows and AI takes center stage, business leaders must adapt by prioritizing mission-critical use cases that directly impact efficiency, revenue, or customer satisfaction, much like Salesforce appears to be focusing on. With many companies actively consolidating their software stacks, reducing the number of vendors they rely on, it’s essential to offer integrated, high-value solutions rather than fragmented tools.
Leaders should embrace AI-first strategies – whether by embedding AI into existing products or investing in native AI capabilities – to stay competitive, and this should come as no surprise. However, at the same time, it’s also important to ensure that customer satisfaction is consistently the top priority – something that ecosystem members will be observing in regards to how Agentforce agents fit into the new customer service landscape.
As software budgets tighten, companies will stick with vendors who deliver clear value, ease of use, and tangible outcomes, and you can bet that if an AI-native solution can help them reach their goals faster or more cost-effectively, their loyalty will lie there.
Always Consider Security
It seems like creating and working with AI-powered solutions is the way forward in a market that’s declining, but it does not come without its security considerations. Security should always be the top priority for any new business venturing headlong into a new technological territory, but especially with AI, thanks to its behemoth of capabilities.
According to Forbes, one aspect to keep an eye on is ‘shadow AI’ – the new version of ‘shadow IT’ – the use of IT-related software or services by employees without the explicit approval or knowledge of the organization.
AI-powered apps and solutions are likely to be entering your SaaS stack without your approval or sometimes even your knowledge, and although a lot of these tools will often seem like nothing to worry about (writing assistants, meeting notetakers, document summarizers), they have the potential to plug directly into your SaaS environment and access sensitive information.
The difficult part comes from the fact that once access is established, it’s hard to track and even harder to rescind. If the AI tool gets hacked? Then the attackers also inherit its permissions, presenting a major security risk.
Alongside Salesforce’s robust suite of security tools, it also had the Einstein Trust Layer for its AI tools. This layer tackles the aforementioned issues and uses preventative measures to keep users and customers safe, and is the kind of framework any strong SaaS solution should utilize.
Summary
Once the backbone of digital transformation, SaaS is facing a decline as AI takes the spotlight, pulling both budget and attention away from traditional software models. With Q1 2025 showing the worst performance in years for the SaaS market, business leaders are being forced to rethink their strategies, shifting focus to mission-critical use cases, AI-first integrations, and streamlined tech stacks.
As customer expectations rise and market saturation rages on, success will hinge on delivering clear value, evolving pricing models, and maintaining airtight security.
Those who adapt to the changing landscape stand to find opportunity in what appears to be a new era for enterprise tech, and we’ll be reporting on the developments every step of the way.
