The rise of artificial intelligence (AI) has transformed the tech industry, ushering in major opportunities for new ventures, but that growth will feel slow for those in software as a service (SaaS), according to Dr. Ranjit Tinaikar, the CEO of Ness Digital Engineering.
“AI fundamentally changed both the product of SaaS and the market for SaaS,” Tinaikar said during a Newsweek webinar on Thursday. “[But] there will be a phase lag between the talk today and the reality that will happen.”
Ness Digital Engineering, a portfolio company of KKR, is a global provider of intelligent data and software engineering sales. Tinaikar joined the company in 2020 with more than 20 years of experience in the technology services sector. He previously served as the president of Fitch Solutions, a data and analytical services business; the managing director of Advisory & Investment Management, the data analytics business unit of Thomson Reuters; and a partner at McKinsey.
Thursday’s “The Myths and Realities of AI for SaaS” webinar was hosted by Gabriel Snyder, the editorial director of Newsweek Nexus, and designed for business and tech leaders navigating the hype and reality of AI adoption.
At the top of the conversation, Tinaikar acknowledged that SaaS has had a “fantastic” decade. The industry has seen a massive swell in investment, with 40 to 50 percent of venture capital dollars flowing into companies with a SaaS model, according to industry group SaasRise. Fortune Business Insights also forecasts the global market to rise from $266 billion in 2024 to at least $315 billion in 2025.
But Tinaikar argued that half of SaaS growth has stemmed from broader economic upswing.
“When the economy expands, people spend more, therefore, technology spending goes up,” he told Snyder. “The other 50 percent was driven either by taking on-prem applications to SaaS or finding new applications with SaaS.”
Fueled by the rise of Salesforce and the pandemic-era surge in Zoom’s adoption, Saas has experienced remarkable growth over the last ten years. Today, AI is changing that growth curve again. Tinaikar said the reason he expects there to be a phase lag in the industry, though, is because there are currently two very different players in the market.
“You’ve got the incumbents who have been around, who have big SaaS-installed basis, and then there are the newcomers who are native AI,” he said. “The incumbents have a product challenge. They have a product, which is built on a certain architecture, and AI comes and challenges that. Now, to refactor that whole architecture is a lot of money and a lot of risk. So, it’s gonna take some time. “
Because of this, Tinaikar anticipates there being a gestation period before AI begins adding real value to these incumbent SaaS players. In the meantime, however, there are native AI players who are entering the market and finding that they can get tasks done just as effectively, if not better, in a much shorter amount of time than large enterprises. But the problem there, Tinaikar said, is that markets typically refer larger incumbents over smaller players, who might be riskier.
“The small buyers are ready to buy them, but the big guys are going to wait for a bit before they are reliable,” he said.
Knowing that the growth curve of AI will take some time to play out for SaaS, Tinaikar said the immediate value of AI for SaaS is not in revenue, but productivity. Buyers expect AI features without paying more for services, so SaaS companies will be forced to take a “long‑term view” on investing in AI and wait for revenue to roll in later down the line.
“The current market reality is where there’s macroeconomic uncertainty,” he said. “There are inflation cost pressures on [chief information officers]. Taking those long-term bets is not always practical for many companies, and that’s why you’re seeing this sort of more cautious approach to investing in AI to transform SaaS products.”
He said that this doesn’t mean incumbents are shying away from investing in AI. In fact, he believes all SaaS players are, they’re just doing so with “cautious optimism.” Still, Tinaikar advised the industry to avoid “over-pivoting” and to “spend smartly.” He said SaaS companies shouldn’t roll back on sales and marketing, but rather find ways to bring up productivity there.
“”You have to invest in new products or buy them if you you cannot build them in time,” he said. “That’s how you get to the opportunity cost.”
Tinaikar concluded by urging companies to analyze their leadership teams, warning that, “culture may be the biggest bottleneck to going into new markets.”
“Culture eats strategy for breakfast, ” Tinaikar said. “Do you have the right leadership? That’s your biggest risk.”