Is the SaaS Bubble Finally Bursting? - Chamath Palihapitiya

if I had to guess about what has changed from 2021 to 2025 is that most companies have realized that buying yet another vertical software solution is not going to help their business that it typically adds bloat it adds cost and it adds people and I think starting in 2023 what people started to guess is at some point in the near future you're going to have some AI way of rewriting all of this vertical software and I think that's why it stopped growing i don't think this SAS market ever had the return on equity that it was supposed to and I think so many companies have woken up from this hangover saying there's got

to be a better way it can't always be yet another tool yet another program yet another multi-year delay yet another price escalator and I think that that the jig is totally up for software you're referring to the Salesforce and the SAS category Chimoth and what you're doing at 8090 specifically yeah well it's it's not just us but like if you look at anybody that's rebuilding software it is so much easier to rebuild software from scratch today like my team of 30 people can transact hundreds of millions of dollars of work not because we are so prolifically amazing but frankly because well I think the team is good but honestly because the underlying tool

chain gives you a level of leverage and so if you rebuild the software development life cycle using these tools you can't help it but become much more efficient and you can't help it but deliver custom solutions that are meaningfully cheaper and I think Jason if you look at the entirety of the software that runs the world we're going to rebuild it soup to nuts all of that and the tool you're referring to just for the audience is the AI co-pilots that are making that are contributing 30 40% to code bases at Microsoft and less less specifically that because those are those are good for individual people but

the software development life cycle is more the horizontal end to end of making things got it so what we do internally at 8090 is we have an entire process that starts from the PRD all the way out to the functioning code and we use different techniques at each step but what you get is a 50 60 70% increase at each step which then compounds and so you have the ability of a team that would otherwise be able to service tens of millions of dollars be a team that can service hundreds of millions and then a team that would otherwise service hundreds can service billions let me ask you guys your response to this theory if there is going to be this kind of accelerated

call it custom software rebuild of business models and you take the S&P 493 do you think that we enter an era where there is a similar dispersion as we're talking about seeing in the MAG 7 with the S&P 493 where there are going to be probably the biggest money-making opportunities for investors that we've seen in decades between those that do adopt and do rebuild using AI and those that don't for 100 100% i had a call yesterday with one of the largest private equity funds in the world hundreds of billions of dollars under management and we're doing something with them at 8090 with one of their most important assets

and when you're an owner of a business and you can direct specific change and you can rip out hundreds of millions of dollars of software licenses and replace it with tens of millions of dollars of highly customized software it's an enormous lift to OPEX and business model quality so why doesn't it happen more the reason it doesn't happen right now for this S&P 493 is that the IT organizations inside all companies essentially speak a different language than the CEO the CFO and the board so if the CEO CFO and the board of directors of the S&P 493 speak English the IT organization speaks Mandarin Chinese and you get away with saying all kinds of

i'll give you an example i went to a CIO conference one person that I met an $18 billion a year IT budget what the does that actually even mean to spend $18 billion a year on it i'm not saying that this is a mag seven company guys and when you take that example and you multiply it by 50 and 100 and 493 examples of people spending money there's an entire cartel of influence that's been built in software that's going to get undone because you're not going to be able to justify it free absolutely correct and the response from the SAS industry is changing from the per seat model as the number of employees at these companies continues to get lowered obviously

Microsoft a lot of layoffs andy Jasse talking about layoffs they're moving from the per seat model they're not taking this uh laying down uh they know that people are going to make custom software so what they're doing is they're moving to a consumption model so you're seeing people charge per call per customer support call etc and well it's I'll tell you why it doesn't work it's working in combination hold on hold on let me finish the other thing they're doing is they're dramatically lowering the number of people and the developers they have on their team and then a lot of what's happening in the background is the third

piece they're doing is they're starting to uh do rollups and people are starting to talk about how can we take you know 20 of these SAS companies lower them just like you're doing to compete your thought playbook well I just wanted to comment on this like consumption based pricing it doesn't work and what I mean is you can have some adoption in the short term the best example is Snowflake but in the long term it destroys your business and the reason is because you don't know which data is valuable and you're not going to put up with a variable business model that increases more and more cost

because you need to trap everything and so what happens is all of these other companies develop around you people go back to Postpress people go to Superbase they find all of these ways of saying snowflake makes no sense and the reason is because in this world nobody's going to pay consumption because you're like how do you expect me to you know hold and store and pay for terabytes and terabytes potentially a day of data it's not sustainable we'll see if intercom Salesforce HubSpot and we see if all of those people start Slack start losing their customer base or if they lower their pricing to make it just too easy to keep those systems in thomas your thoughts yeah so two quick thoughts uh

number one Chimath to put a kind of a mathematical frame on this right we know that Anthropic is kind of the level zero of code generation they're they're doing incredibly well powering companies like Cursor right i think and this is order of magnitude correct that Enthropic in Q1 added 70% of the net new ARR in the SAS industry right defined by public SAS companies right so let's just think that the company in AI that is most powering the disruption of SAS added 3/4 of the net new of the entire industry right so that's kind of point number one I think Freedberg point number two I think what we're seeing in the Max 7 right where

we're starting to have debates about who's well positioned and who isn't who's going to win and who isn't right is actually as it was in the past 5 years going to be a broader lens into the S&P 493 I think inside of boardrooms inside of every investment committee you're going to see the exact same conversations that we've been having about the MAX 7 right who who's well positioned who can win what are the management teams maybe like Zuck that are being aggressive and bold and capturing the opportunity and which are the ones that are not so for me as a stock picker right I think over the next five years