The Other Bubble

Source: Where’s Your Ed At Date: 2024-09-26 URL: https://www.wheresyoured.at/saaspocalypse-now/

Summary

Zitron argues the SaaS industry, facing stagnant growth (declining to 23-24% YoY from pandemic peaks), has desperately pivoted to generative AI as a revenue-growth tool. These AI features are expensive to operate, underwhelming in functionality, and largely unprofitable — creating a second bubble layered on the AI infrastructure bubble. Enterprise software spending is contracting while AI adoption remains minimal despite heavy marketing.

Implications

• The SaaS-AI double bubble is the most specific near-term risk. SaaS companies with declining growth rates adding AI features face: declining core growth + AI feature costs + PE-era debt service. A three-way squeeze.
• Vendor lock-in as the last resort. Customers who can’t easily switch will absorb AI feature costs even if they produce no value — making revenue appear more stable than it is.
• Watch: Salesforce, ServiceNow, HubSpot, and Workday AI revenue disclosures in 2026.