cloudedjudgement.substack.com · 2023-03-31 · 1161d

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.

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Metrics in this report

CAC Payback Period

30months

median

Public SaaS companies

EV/NTM Revenue Multiple

6.0-11.2x

median and average

Public SaaS companies

Free Cash Flow Margin

2percent

median

Public SaaS companies

Gross Margin

80-85percent

typical

Application software companies

Gross Margin

70percent

typical

Infrastructure software companies

Gross Margin

74-76percent

median

Public SaaS companies (Top 10 EV/NTM Revenue)

NTM Revenue Growth

16percent

median

Public SaaS companies

Net Revenue Retention

116percent

median

Public SaaS companies

Operating Margin

-22percent

median

Public SaaS companies

S&M as % Revenue

47percent

median

Public SaaS companies