- In today’s CEO Daily: Diane Brady reports on how CEOs should be thinking about the ‘SaaSpocalypse.’
- The big leadership story: The potential fallout of xAI’s mass X-odus
- The markets: Mixed globally, with European stocks inching higher on positive earnings reports.
- Plus: All the news and watercooler chat from Fortune.
Good morning. Sell! Buy! Wait, what’s going on with software as a service, that generation of tech players that grew to behemoth status by letting subscribers access software from the cloud? Companies like Salesforce, Oracle, Asana, DocuSign and Intuit have taken a drubbing in recent weeks; Workday co-founder Aneel Bhusri is coming back as CEO to deal with the challenge.
What precipitated the latest selloff—dubbed ‘SaaSpocalypse’ by Jeffries analyst Jeffrey Favuzza—was the one-two punch of Anthropic and then Open AI launching agentic AI systems for enterprises that appear to perform some key functions currently provided by SaaS players, undermining their business models. Will Anthropic’s Claude Cowork and OpenAI’s Frontier doom the SaaS giants? It depends. Check out my colleague Jeremy Kahn’s take on that.
What’s clear is that a few factors will differentiate the winners and losers in this new era.
Data: Mission-critical software that’s integrated with sensitive, regulated or high-value proprietary data is hard to dislodge. I’ve yet to meet a leader who’s eager to outsource their payroll or enterprise security to a large language model. What we pay our people is more sensitive than what we pay for products. That makes me wonder if HR companies like Workday, for example, are in a stronger position than some investors might think.
Volume: SaaS companies tend to charge by user, not usage. Who hasn’t seen a new software contract spark lobbying efforts in the office for access to one of the “seats” authorized under the new license. That’s different from the model used by Milan Shetti, CEO of Rocket Software, which serves clients in highly regulated industries like financial services, insurance and healthcare. “We have usage‑based pricing, not seat‑based pricing,” Shetti told me earlier this week. “The SaaS companies with user‑based pricing have taken a hit, because if AI improves productivity, the number of users goes down.”
Pricing: As Palantir CEO Alex Karp pointed out this month while reporting record earnings, AI should reduce IT costs as it becomes better at writing and managing enterprise software. Instead, SaaS costs have been outpacing inflation, as vendors push through aggressive price increases. Some are trying to monetize and recover their own AI investments with premium packages. (We know Microsoft has spent a big chunk of change.) With more functions come higher price tags. But CIOs and their bosses are clearly facing their own budget constraints. Some may welcome the disruption wrought by large language models as a wakeup call for vendors.
Of course, every leader has to consider changing gears in this environment. Whether you plan to vibe code your way to growth or stick with what’s worked thus far, I’d love to hear from you about your experience.
Contact CEO Daily via Diane Brady at diane.brady@fortune.com
Top leadership news
X-odus from xAI
Half of the founding team of Elon Musk’s xAI have now left the company, just as a public listing of the newly merged xAI–SpaceX gains steam. The exodus plus product stumbles, safety controversies around its Grok chatbot, and heavy infrastructure needs could complicate the road to a public listing and scare off investors.
CBO projects fewer workers by 2035
A new outlook report from the Congressional Budget Office predicts that the U.S. will have 2.4 million fewer working-age Americans by 2035 than predicted last year. The onset of AI could make up for that lost productivity, with the CBO forecasting output in the U.S. economy to be 1% higher in 2036 than it would be without AI.
Is reskilling the answer?
Khan Academy CEO Salman Khan recently told Fortune that even a 10% decrease in white-collar jobs due to AI would “feel like a depression.” His solution is a massive reskilling initiative across the country.
The markets
S&P 500 futures were up 0.26% this morning. The last session was flat at close. STOXX Europe 600 was up 0.32% in early trading. The U.K.’s FTSE 100 was up 0.31% in early trading. Japan’s Nikkei 225 was down 0.02%. China’s CSI 300 was up 0.12%. The South Korea KOSPI was up 3.13%. India’s NIFTY 50 was down 0.57%. Bitcoin increased to $68K.
Around the watercooler
Big Oil embraces global exploration again as Chevron returns to Libya by Jordan Blum
Meet the serial CEO taking over Kroger: He started his career stacking supermarket shelves and went all in on retail at 17 thanks to his persistent mom by Emma Burleigh
Ex–Google exec says degrees in law and medicine are a waste of time because they take so long to complete that AI will catch up by graduation by Preston Fore
The 45-year decline of the middle class costs you $12,000 a year by Jake Angelo
CEO Daily is compiled and edited by Joey Abrams, Claire Zillman and Lee Clifford.
