How will new AI technologies change traditional SaaS businesses and products in the next few years?
Will they simply improve SaaS products and create higher value for customers while keeping the same per-user business model?
Or will they completely change the SaaS business model and user experience, disrupting existing “legacy” SaaS businesses?
Practical founders must wisely place their bets to change their game as the landscape changes.
This week on the Practical Founders Podcast, I invited a savvy software entrepreneur, AI technologist, and seed-stage venture investor to share what he’s seeing right now with new AI-powered startups.
David Evans is the managing partner of Sentiero Ventures, a seed fund focused on AI-focused software startups. He sees hundreds of newfangled B2B startups a year and works with founders he has invested in.
David has a long history of building products using AI and predictive modeling in his previous software companies, where he was the technology leader and CEO.
We discuss what’s happening this year with AI and the opportunities and challenges it presents for practical SaaS founders.
As David explains, some new AI-powered software products don’t have an interface for end users. These technologies plug in and work without user intervention, so per-user/per-month pricing doesn’t make sense there.
There are new opportunities and challenges with AI-focused startups that are different than what we see now in traditional SaaS businesses.
Here’s what he is seeing with new business models:
“We are starting to see some opportunities to scale revenue more quickly with AI-powered technologies when you charge based on utilization. With the right sort of unit economics, you have the opportunity to scale your revenue more directly with the value created. Companies will scale their utilization very quickly when they see results. So it can get really interesting very fast.
“But a big challenge we see right now with AI-powered software companies is on the cost side. The traditional per-user, per-month model in SaaS is becoming increasingly difficult to justify in AI-powered companies because every time I interact with ChatGPT, there is an associated nontrivial cost for every AI-powered transaction. This cost is much higher per transaction than with traditional SaaS software.
“So we’re seeing a better scale with utilization-based billing, but you have to figure out the unit economics to ensure you’re doing it profitably.”
In this expert podcast interview, David explains:
- The new questions about revenue models for AI-powered companies
- The challenge of cost in AI and the potential for innovation
- The importance of clean and relevant data to train models and for machine learning
- Balancing AI in the go-to-market strategy
Check out this insightful interview with David Evans on the Practical Founders Podcast.
