AI is not an enterprise SaaS killer

Welcome to Runtime! Today: Why fears that AI upstarts will drink enterprise SaaS milkshakes are not irrational but a little premature, how AWS dodged an enormous security debacle thanks to Wiz. and the latest enterprise moves.

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Enterprise SaaS vendors won most of the "build vs. buy" debates over the last decade in large part because building a bespoke CRM system or HR management tool required an enormous, time-consuming and expensive effort that was almost impossible to justify. While there is justified excitement around the potential of AI agents to change that equation, everyone is getting ahead of themselves.

Led by Salesforce and Workday, SaaS stocks fell widely this week after Anthropic introduced Claude Cowork, which could be a powerful tool for getting a variety of work done but is still just a research project. But after more than a year of struggling to deliver on their agentic AI promises, it's no surprise that people are starting to wonder if traditional enterprise SaaS companies know what they're doing.

"If an AI tool such as Cowork can autonomously handle a wide range of complicated workflows, investors fear it could reduce the need for specialized solutions and reduce subscription revenues for incumbents," MarketWatch reported, summing up this week's zeitgeist.
That fear stems from memories of how those incumbents were once the upstarts, changing the game forever by offering a browser and app-based alternative to the clunky on-premises enterprise software packages that users were forced to install and maintain more or less on their own.
Given the widespread use of AI coding tools and the unprecedented speed at which those tools allow developers to turn ideas into software, it's not hard to see the current moment as the beginning of the end of an era of enterprise SaaS.

But it is much harder to kill established enterprise vendors than it might seem, given the caution with which most BigCo tech leaders deploy new technologies and the data stored in existing systems. AWS introduced S3 and EC2 in 2006, but it wasn't until AWS won an enormous deal with the CIA seven years later that enterprises really started to get on board with cloud computing.

Right now AI companies are in a "proto-market," according to Derek Xiao of Menlo Ventures, who described those markets as "evolutionary precursors where demand exists but selection and speciation have yet to take hold."
In other words, AI-native companies have shown us enough to understand that they're onto something, but "the division of value between end users, AI applications, and underlying foundation model has not yet equilibrated, making current economics a poor guide for long-term market structure," Xiao wrote.
That means there are definitely some (but not all) incumbent vendors with established customer relationships that could pull off the transition to the AI era.
"The data tells a nuanced story: AI is creating both unprecedented opportunities for disruption and new forms of defensible value creation," argued Josipa Majic Predin in Forbes.

Many things can be true at the same time: AI coding tools will build the homegrown applications of the future much quicker and cheaper than once thought possible, AI-native vendors are iterating quickly to serve the enterprise market, and CIOs need to see more stability from both categories to throw out years of investment in tools built by the current incumbents.

"Systems of action [AI and agents] are indeed replacing pure systems of record [traditional SaaS], but hybrid approaches combining historical data with AI capabilities may prove most valuable," Predin wrote in Forbes.
The zillion-dollar question is whether the AI upstarts can get enterprise-pilled faster than enterprise stalwarts can figure out how to embrace AI without breaking the workflows of their current customers.
"The builders who win will treat every user interaction as raw material—captured in ontologies, decision traces, and learning loops—and compound it into a lasting advantage before the market is even fully formed," Xiao wrote.

Root cause

The spectre of supply-chain software attacks has lingered in every CISO's mind since the discovery of the SolarWinds attack in 2020. Thanks to the help of Wiz, AWS managed to avoid a supply-chain attack for the history books last summer that could have compromised every single AWS user.

Wiz announced Thursday that it found a flaw in the AWS CodeBuild service — the cloud leader's take on the continuous integration concept — that could have allowed attackers to inject "malicious code to launch a platform-wide compromise, potentially affecting not just the countless applications depending on the SDK, but the Console itself, threatening every AWS account." Wiz confidentially disclosed the flaw to AWS last August, and AWS told The Register that it was patched in September before it could have been exploited.

When Google Cloud announced its intention to acquire Wiz last March, questions swirled around whether Wiz would continue to stand out as a multicloud security service under Google's control. That deal has yet to close pending approval from European regulatory authorities, but Google now has a great case study to showcase.

Enterprise moves

Hadi Moussa is the new CEO of Oyster, joining the HR software company after serving as CEO of Coople.

Gavin Mee and Detlef Krause are the new chief operating officer and chief revenue officer, respectively, at DeepL.

Debra Raggio is the new executive vice president and chief legal officer at PowerBridge, joining the data-center construction company after leadership roles at Klondike Digital Infrastructure and Talen Energy.

Matt Quarles is the new chief revenue officer at Tiugo Technologies, joining the developer tools company after sales leadership roles at Salt Security and Evident ID.

Mina Alaghband is the new chief customer officer at Writer, a newly created role at the enterprise AI company for the former McKinsey partner.

Fay Sien Goon is the new chief financial officer at OutSystems, joining the low-code development company after finance leadership roles at AppFolio and ServiceNow.

The Runtime roundup

OpenAI plans to buy computing capacity from AI chip-maker and cloud company Cerebras that could be worth up to $10 billion, assuming OpenAI can figure out how to generate enough revenue over the next several years to pay for its compute commitments.

Cloudflare acquired Human Native, a startup working on a marketplace for AI data, for an undisclosed amount.

Thanks for reading — see you Saturday!