From Tools to Outcomes
The traditional SaaS model involves building workflow tools and selling them through per-seat subscriptions. According to a16z’s report, AI is enabling a different approach where software directly replaces labor rather than simply assisting employees. This shift means AI applications now compete for companies’ labor budgets rather than their software budgets, dramatically expanding the addressable market.
The firm points to portfolio company Salient as an example. Rather than selling CRM software to debt collection agencies, Salient uses AI agents to automate the collection process entirely. These agents operate in dozens of languages, understand regulations across all 50 states, and work around the clock. Customers pay based on recovered debt rather than monthly per-user fees.
Data as Competitive Advantage
As large language models from companies like OpenAI and Google become more powerful and accessible, a16z argues that proprietary data has become the only sustainable competitive advantage. The report highlights Open Evidence, which secured exclusive licensing rights to medical journals and literature. While general-purpose AI models can answer medical questions, they cannot access the closed, high-quality datasets that Open Evidence uses.
Incumbents Strengthening Position
The analysis cautions that established enterprise software companies like Workday, Salesforce, and NetSuite are using AI to reinforce their market positions rather than being disrupted by it. A16z describes these companies as having “hostages, not customers” due to prohibitively high switching costs and deep integration with enterprise operations.
These incumbents can introduce AI-powered features and charge significant fees with limited customer pushback. The firm advises startups to seek “greenfield” opportunities in new markets rather than competing directly with entrenched players.
New Go-to-Market Strategies
The report identifies emerging business strategies including vertical integration, where companies acquire traditional service businesses to serve as testbeds and initial customer bases for AI automation. This approach addresses customer acquisition and product-market fit challenges inherent in the software industry.
A16z emphasizes that current AI applications primarily enhance human labor or address talent shortages rather than causing mass unemployment. The technology handles repetitive or undesirable tasks while freeing workers for higher-value activities.
What This Means
According to a16z, entrepreneurs should focus on finding untouched corners of the economy and building AI-powered systems that convert labor-intensive services into scalable software businesses. The firm suggests the path forward involves selling results rather than tools, building proprietary data advantages, and avoiding direct competition with established software giants in their core markets.