The Future of SaaS: Navigating the Shift to Systems of Context

Despite strong operational resilience, public Software-as-a-Service (SaaS) companies face severe equity underperformance. While revenue growth has stabilised, net dollar retention remains resilient, and margins align with the “Rule of 40,” SaaS valuation multiples have compressed significantly, according to the latest report from VC firm Avenir.

AI Bear Cases vs. Incumbent Advantages

SaaS bear cases generally centre on two theories:

• Production Cheapness: AI-assisted development and “vibe coding” will enable cheap internal software builds or upstart alternatives that undercut incumbents.
• Agentic Disruption: Autonomous AI agents will reduce seat-based pricing by replacing knowledge workers and displacing traditional systems of record.

However, data indicates that SaaS incumbents hold deep defensive moats. Enterprise software buyers strongly prefer purchasing AI features from existing vendors over building in-house or adopting unproven startups. Brand-name SaaS providers retain unmatched advantages in feature completeness, ecosystem integrations, user familiarity, security, and lower total cost of ownership. Rather than being displaced, incumbent SaaS platforms are capturing early AI revenue streams, as seen in the traction of products like Salesforce Agentforce, ServiceNow Now Assist, and Intercom Fin AI.

The Battle to Be the Next System of Context

The central thesis is that the enterprise landscape is evolving from holding raw data to capturing full operational context.

• Decoupling Intelligence: Raw model intelligence is rapidly commoditizing, driving capability costs near zero.
• Context as the Differentiator: Unlocking the true value of AI agents requires deep “situational awareness”—a complete understanding of business goals, operational history, and cross-platform human interactions.
• Unlocking Agency: High-trust, high-value autonomous actions cannot be delegated to AI without rich underlying context.

This dynamic has set off a direct confrontation between SaaS incumbents and AI-native startups. Traditional systems of record dominate digital context today but must actively expand their reach—capturing ambient interactions across communications channels, building adaptive interfaces, and moving up the “context ladder” to power proactive agents. Concurrently, AI-native startups are attempting to capture context quickly to become the new systems of record. Furthermore, incumbents are increasingly limiting open API access to protect their data boundaries against emerging AI competitors.

Looking Ahead

Near-term AI monetisation will depend on the “context intensity” of discrete units of work. Platforms handling low-context, highly repetitive tasks—such as customer support ticketing or IT service management—are emerging as early winners. To maintain market leadership long term, enterprise SaaS providers must embrace aggressive, war-time execution, defend their core systems of record, re-evaluate business models, and integrate AI talent to establish themselves as the definitive systems of context.