Why Salesforce and fellow SaaS giants earned this AI crunch: Parmy Olson

Key topics:Anthropic AI launch sparks $1T SaaS stock selloffAI threatens SaaS apps, not core data systemsPricing power of enterprise software now at risk.Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..By Parmy Olson.Product releases from Anthropic PBC last week triggered a nearly $1 trillion selloff of enterprise software stocks, extending a decline that’s been on course for some time. Salesforce Inc., which sells customer relationship management software, and Workday Inc., which provides financial management software, are both down more than 40% over the past 12 months. On Wednesday, the market rout spread to wealth management firms and, it seemed, any company that appeared to be in the crosshairs of artificial intelligence.This sell-first, ask-questions-later moment is overdone. In the case of enterprise software makers, investors are missing a crucial technical distinction between vendors like Salesforce, and AI tools such as Anthropic’s Claude Cowork that suddenly look like a threat.What AI can do increasingly well is the higher-level knowledge work that many software-as-a-service (SaaS) applications were built to facilitate. That part of the business of Salesforce and its peers is indeed under threat. But AI can't yet compete with their underlying, systems-of-record offerings, which process proprietary data like billing, compliance and audit trails for a corporate customer. “These are precisely our areas of strength,” Madhav Thattai, an executive at Salesforce, tells me. .Read more:.Google’s free ride on web data threatens fair play in the AI race: Parmy Olson.He’s right. Agents, the hot new AI tools that carry out tasks like booking an appointment instead of just answering questions, can’t replicate thousands of bespoke business rules built up over years, areas where firms like Salesforce, SAP SE, Oracle Corp. and Epic Systems Corp., used by hospitals, are entrenched.Other SaaS executives have pushed back on the bears. SAP Chief Executive Officer Christian Klein argued on an earnings call in January that clever generative AI models couldn’t work with the critical business data and workflows that are his company’s bread and butter.As independent analyst and former venture capitalist Benedict Evans has noted, successful SaaS products are sparked by someone identifying a unique, organizational problem, mapping out a workflow and then coding it into software. That’s how you get the complex, often niche workflows that become the plumbing infrastructure for banks, schools, retailers, hospitals and police departments. It’s when SaaS firms also act as plumbers that things go downhill. The applications built on top of all that database infrastructure have long been terrible: clunky, unintuitive and overpriced, and sometimes insecure.To make matters worse, customers are often stuck using these systems because moving from one provider to another is a lengthy and expensive process. “Software industry models in the U.S. are shaped around monopolization, offering low quality and bad security for high prices,” writes Matt Stoller, director of research at the American Economic Liberties Project, a nonprofit that campaigns against monopolistic practices. Stoller, in his latest newsletter, describes a 2016 meeting with community bankers in which they derided their niche software vendors as “expensive” and “terrible.”Swedish fintech company Klarna Group Plc stopped using software from Salesforce and Workday in 2024, replacing the incumbent vendors with tools from smaller SaaS companies with names like Deel and Neo4j, then using an AI coding tool called Cursor to build a more modern application layer on top.In other words, Salesforce customers like Klarna aren’t just replacing their old SaaS software with AI tools. They’re also using AI to build their own applications to better serve their needs, squeezing out the expensive interface layer while keeping the underlying data intact.The rather boring data management and compliance systems sold by big SaaS companies aren’t what’s under threat, but their apps are. And Salesforce sits right on the fault line of what’s safe and what’s vulnerable, being partly a system of record and partly a knowledge interface that AI tools are trumping.Last year Salesforce boldly tried to stave off the threat, becoming the first large tech company to sell AI agents with a program it called Agentforce. CEO Marc Benioff said the new platform was core to what Salesforce did, even suggesting the company could change its name to “Agentforce.”But Agentforce’s performance has been lackluster. Christine Marshall, a Bristol-based Salesforce trainer and one of the company’s most recognized outside experts, wrote a surprisingly tepid review of the platform last year. After testing Agentforce on six common tasks, she found it only handled two of them well, and fumbled helping a user reset their password.Salesforce’s Thattai wouldn’t address the review when I asked him about it, saying that Agentforce behaved in a consistent and reliable way, even when paired with a large language model. Agentforce, ironically, uses AI models from OpenAI and Anthropic, the companies that now appear to be threatening its business..Read more:.The Economist: Are software stocks are getting pummelled, overestimating AI risk?.A market correction was needed for the inelegant applications that so many businesses are locked into. But SaaS companies have enjoyed high valuation multiples because they control both the infrastructure and interface. If technology from Anthropic and OpenAI can sit on top of those systems of record, they’ll start to erode the pricing power of the SaaS companies that run them. That means that for enterprise software’s bloated application layer, the age of easy margins may be over..© 2026 Bloomberg L.P.

Why Salesforce and fellow SaaS giants earned this AI crunch: Parmy Olson

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