Rick Sherlund, AI Software Advisor, will join us at The Montgomery Summit 2026
The software market is not dead, it is being reborn around AI – There are over 10,000 VC funded AI companies, most are Native AI software companies with plans to encroach upon the $400B global SaaS market. The larger, more established SaaS vendors are at risk and their declining stock valuations underscore for them the urgency to redesign their systems around an LLM (foundation model) architecture and a reasoning, agentics framework.
These vendors disrupted the prior generation of client/server companies, so they understand the disruptive impact and opportunities of technology platform shifts and the need for a more extensive rearchitecting vs a bolt-on of some new features. Bolt-on functions may be quicker and look good in the marketing literature but would risk missing the more critical and transformative opportunity to rearchitect to address new automation processes made possible by the LLM intelligence and reasoning at the core and orchestration of evolving autonomous agents.
We are not suggesting that incumbent SaaS vendors will win vs the upcoming new generation of AI native software companies and a fragmented agentics market, we are saying they get it and are rearchitecting to have a better chance of adapting. They will be disrupted, but as Bain has characterized it, they are fighting to avoid obsolescence.
Software will expand dramatically as a result of these new automation technologies; it will just look a lot different. At the applications layer, there may be greater encroachment by AI native vendors with new processes enabled by intelligence (LLMs) at the core and there may be greater fragmentation in the market vs traditional suites where third party agents encroach and impact growth rates for established vendors. We saw this with the move from client/server to the cloud/SaaS model where best-of-breed software solutions were embraced in the market vs traditional monolithic suites. We may see further disaggregation with the platform shift to AI, as agents enable a fragmentation of functions and an unbundling of existing SaaS functions.
We are seeing this now with customer support agents impacting CCaaS and related IVR based systems and from unbundling of sales and marketing agents. Anthropic’ s Coworker, OpenAI’s Frontier and OpenClaw are recent enablers of agentics that complement or replace existing functions and enable new automations, so software is not dead, it is being reborn.
This is not to say that existing vendors will not be disrupted, that depends on how aggressively they rearchitect and even then there may be cannibalization as third party agents encroach and impair growth opportunities in what is likely to be a greater fragmentation or unbundling in the market vs the traditional suite solutions.
AI enables new processes – Traditional SaaS companies have hard coded processes that reflect industry best practices for workflows. Their user interfaces are human centric, menu driven and human click-through oriented. With AI based systems, the user interface is more conversation. It is possible to embed the LLM intelligence engine at the core to orchestrate agents that can reason, make decisions and take actions to perform tasks traditionally performed by humans.
Also, AI based systems that have intelligence at the core can incorporate new processes that were not possible before. Our point is that with intelligence at the core, new processes may become possible so it will be important for incumbent SaaS vendors to evolve their workflows to reflect new processes that may have previously been human oriented or simply not possible with the older architecture. It’s about inventing new innovative processes that lessen human involvement.
By Guest Author, Rick Sherlund, AI Software Advisor; CEO, Sherlund Partners
The conversation continues March 10 & 11 at The Montgomery Summit presented by March Capital, at the Fairmont Miramar Hotel & Bungalows. Join Rick and an exceptional lineup of industry leaders for two days of candid conversations, market insights, and meaningful connections across enterprise software, AI, and emerging technologies. A limited number of passes remain. Request an invitation at www.monty.com.
