SaaS to AI-First Transformation

**Ray Rike** (0:08)
Welcome to the AI to ROI podcast, The Big Story episode. I am Ray Rike, the founder and CEO of Benchmarkit.

**Peter Buchanan** (0:17)
And I'm Peter Buchanan, the managing partner at Newplan.

**Ray Rike** (0:21)
And this weekly Big Story episode is where we dive in to that Big Story of the Week from the AI to ROI newsletter, which can be seen and read in detail on Substack. That is AI to ROI. That's the number two. So AI to roi.substack.com.
So Peter, can you introduce this week's big story that we'll be discussing?

**Peter Buchanan** (0:45)
I can. So first of all, welcome to the AI to ROI story of the week. This week, we're going to be talking about a huge issue for software companies. It's transformation of SaaS companies to become AI first companies. It's a huge challenge. And there's a lot on the line because the SaaS industry itself generates $273 billion a year in revenue and it is under attack. So if you listen to Salesforce founder and CEO Mark Benioff, he says, we are rebuilding every one of our products to be a Gentic AI. So Ray, let's get started here.
This feels different than past platform transitions. And so why is that? How is this different?

**Ray Rike** (1:38)
Well, first of all, even though we do not provide investment advice here on AI to ROI, if you look at the enterprise value of SaaS companies, the enterprise value to revenue multiples, I mean, in the last six months, ServiceNow down 22%, Salesforce down 45%, multiples down to about 5x at median. So there definitely is, the investors are saying there's a transition. We see all the AI hype. Now, the AI hype is more today around hardware, infrastructure, you know, than the NVIDIAs, the, I'll be at Google with Gemini 3 OpenAI. But you asked me the question, how's it different? Well, I think there's some similarities, Peter, to the transition we went through about 20 years ago from the traditional on-prem enterprise software model to software as a service. Now, there were phases of that. I still remember the first phase, and this was kind of late 90s, early 2000, was something called ASPs, Application Service Providers. This is where enterprise software companies like Siebel and Oracle weren't ready to move to the cloud or away from that one-time big upfront license because that drove a lot of their revenue growth and their multiples. These ASPs were created and they hosted enterprise software inside of their own data centers. It wasn't multi-tenant. It was one-server, one-customer. So they put an instance of SAP on server one for customer one and server two for customer two. Now, one of the major barriers of ESPs is they were beholden to the actual OEM. SAP could dictate what they could sell, how they could sell it, et cetera. And then there were a few brave enterprise software companies who early on said, hey, we believe number one, the subscription model is the future of enterprise software. And number two, we do believe that multi-tenant architecture is a great efficient way to deploy because it removes some of the total cost of ownership from our customers. So a few brave companies such as Splunk, MongoDB, OneStream, they aggressively moved from an upfront enterprise license to subscription. And then there were VCs. And I still remember this because we were bought by Vista Equity when I was running sales services and marketing for a enterprise software company. And part of their model, their financial engineering model, was eliminate selling one time license, move everything to an upfront license, even though it was still on-prem software.
And for existing customers, they started charging them an annual subscription, basically replacing the maintenance fee. So I guess what I'm saying is, I don't think it's that different to go from SAS to AI. And I think the on-prem software to SAS model provides us some interesting insights and lessons learned.

**Peter Buchanan** (4:54)
So is this just about adding AI features or is it about rebuilding the SAS company from the ground up to be AI driven?

**Ray Rike** (5:03)
Yeah, you could have asked the same thing about trying to turn your enterprise software company into a SAS model 20 plus years ago. It's much bigger and it's much bigger than putting a thin user experience fail like a prompt engine on top of a legacy enterprise application, a SAS app. Every function needs to be fundamentally transition to think AI first.
This means marketing needs to think differently about how they're doing demand gen. Pricing has to be totally redone. Sales has to think about how am I doing both my targeted outbound demand gen and how am I managing inbound leads. Finance, we're going to talk about this later, I think, Peter. We need to talk about how budgeting is different. Cogs and CAC have some different profiles in the AI model. R&D, hey, we need to start thinking about not only automating some of our coding, but thinking about things like context graphs and agentic AI. So it's not a slight transition, it's a fundamental rewrite of an operating culture.