Clouded Judgement: How Will AI Effect Software Business Models?
The article examines two critical impacts of AI on SaaS business models: gross margin compression from AI inference costs and the tension between consumption-based pricing and seat-based models when AI enables productivity gains. Ball argues that incumbent vendors with large balance sheets can afford to absorb AI costs while startups face structural margin pressure, and that consumption pricing models are better positioned to handle AI-driven productivity gains.
Metrics in this report
30months
median
Public SaaS companies
6.0-11.2x
median and average
Public SaaS companies
2percent
median
Public SaaS companies
80-85percent
typical
Application software companies
70percent
typical
Infrastructure software companies
74-76percent
median
Public SaaS companies (Top 10 EV/NTM Revenue)
16percent
median
Public SaaS companies
116percent
median
Public SaaS companies
-22percent
median
Public SaaS companies
47percent
median
Public SaaS companies