Remember when the iPhone dropped and completely flipped the script on mobile? Well, brace yourselves – seems like we’re living through the same encore with AI SaaS meteoric rise. It all started with ChatGPT, which has blown up bigger than a firework factory, having a hundred million people using it in about two first months. No wonder every tech company is scrambling to get a piece of the AI pie.
Investors are eagerly pouring funds into AI-related ventures. And businesses across the board are low-key freaking out, wondering how this whole AI shebang will rewrite their playbooks. If you're a SaaS founder, I bet you can't help but think about whether you should integrate AI into your SaaS. Let's figure it out together.
What’s going on in the cloud world: SaaS vs AI
As market research firm Gartner puts it in its 2023 AI Hype Cycle published last year, generative AI was already reaching the “peak of inflated expectations” and close to tumbling into the infamous “trough of disillusionment.”
In fact, 82% of cloud companies have AI-powered features in their SaaS products already. As a UI/UX design agency for SaaS, we see this tendency in our clients’ requests as well. So many of them rushed to add AI to their SaaS platforms seeking our expertise for a seamless user experience.
But there is a dilemma.
- On the one hand, failing to incorporate artificial intelligence into your product, you risk missing a technological shift and being replaced by those who ignited AI in time.
After all, we all remember the story of Kodak, which was too slow to go digital with photography, or Blockbuster, which didn't keep up with streaming.
- On the other hand, diving into something solely due to hype, without a full grasp of it, can lead to wasted resources and ultimately falling behind.
This had also happened before with many companies that rushed into social media because they didn't want to miss out. They created strategies without really understanding the platforms or having clear goals. This led to mixed results: some built strong brands (Facebook, Instagram, Youtube, LinkedIn), but many wasted resources on poorly planned campaigns and fell behind smarter competitors (Google+, Vine, Ello).
So, should AI be a focus for SaaS entrepreneurs?
First, let’s take a look at the 2023 AI market Map created by Sequoia. Sales, automation, education, healthcare, data science, finance, marketing, and much more – we can clearly understand that artificial intelligence is taking over all classic SaaS niches.
AI has moved from being just a tool to having practical uses and value, and these uses are becoming more varied. AI calendar, AI CRM, AI-driven data analytics software, AI spreadsheet, and so on, the list is endless.
Additionally, AI SaaS companies could be more profitable than traditional SaaS companies, which typically have around 10% net income margins. Tomasz Tunguz, Venture Capitalist at Theory, believes that while AI may inflate the cost of serving the product, it can also act as a deflationary force by increasing productivity and reducing costs across various business functions.
AI will affect four main expense areas for startups, according to their profit and loss statements.
For example, the fintech company Klarna cut their customer service costs by 66% using AI.
Nonetheless, the rapid growth in the number of B2B AI companies doesn't guarantee their success. A lot of them lack a product-market fit or a lasting competitive edge, so the overall enthusiasm in the AI industry may not last.
The graph below illustrates the mobile app retention rate after the first month for AI-driven applications compared to established companies.
While the median retention rate for top consumer companies stands at a respectable 63%, generative AI apps lag behind with a median of only 42%. This disparity could indicate that users are not finding sufficient value in generative AI products to sustain long-term engagement.
Does it mean that SaaS AI is just a buzzword? Well, taking into account the speed with which the AI revolution is taking over the SaaS market, it’s just the beginning.
And again, here’s what Sequoia says:
Last year, we anticipated it would be nearly a decade before we had intern-level code generation, Hollywood-quality videos or human quality speech that didn’t sound mechanical. But a quick listen to Eleven Labs’ voices on TikTok or Runway’s AI film festival makes it clear that the future has arrived at warp speed. Even 3D models, gaming and music are becoming good, quickly.
The journey from SaaS to AI is unfolding in real-time, and the ultimate outcomes remain uncertain. However, one aspect is clear: the companies with a strong strategy, good knowledge of AI, and enough resources will succeed in this new digital era. On the other hand, businesses that are not well-prepared may make rushed decisions and fail to meet their goals.
How to make SaaS and AI work well together
As stated earlier, the transition from Software-as-a-Service to artificial Intelligence represents more than just a technological shift; it demands a strategic overhaul that requires a thoughtful approach, a profound comprehension of AI technology, and a forward-looking vision firmly grounded in the realities of the competitive tech arena.
Here are few tips to help you make the right strategic decisions.
1. Put value above all else.
Judging from the Reddit screen above and the number of upvotes the answer received, simply offering generative AI capabilities is no longer enough. To truly stand out and build an enduring business, you must solve human problems end-to-end and introduce comprehensive solutions that profoundly impact people's lives.
Merely leveraging foundation models as a piece of a larger solution is not sufficient. Success lies in creating applications that introduce new interfaces, improve workflows, and often incorporate multi-modal capabilities.
By putting the value you provide to users at the forefront, you can address the retention problem that plagues many AI SaaS offerings. Users will not become daily active users unless they perceive deep enough value in your solution.
2. Don’t incorporate AI for the sake of AI.
While the artificial intelligence space is generating a lot of excitement and interest, jumping on the bandwagon simply because it's the latest market buzzword is short-sighted.
Think of AI as of a tool, like anything else. Tech is meant to enable your business, not being your business. Successful companies will prioritize solving real problems and delivering genuine value to users (tip #1), with AI serving as a means to that end, not as an end in itself.
For example, our client Privado Dining, an event management platform, did quality user and market research before asking us to design an AI feature. Now, it’s one of their main selling points.
However, we also know companies like Quill or Narrative Science that failed to gain widespread adoption because their products lacked a compelling use case that solved a critical user need.
3. Pay attention to customer satisfaction and marketing.
In the crowded AI SaaS market, success hinges on customer satisfaction and effective marketing, not just technological novelty. To thrive in the business world, it's essential to adopt an entrepreneurial mindset, rather than solely focusing on development. With low entry barriers, businesses must deeply understand user needs, deliver tangible value, and skillfully communicate that value proposition through strategic marketing efforts. Prioritizing the customer experience and promoting problem-solving capabilities will be the true differentiators for long-term survival.
4. Invest in a high-quality UI/UX of your product.
While previous technological advancements, such as mobile and cloud computing, initially gained traction among enthusiastic tinkerers and tech-savvy individuals, generative AI proved useful right from the outset for a much broader audience of "ordinary" people. The thing is that non-tech users require highly intuitive and easy-to-use products.
While many AI tools offer powerful capabilities, they often struggle with usability because of their complexity and experimental nature. Many advanced AI features are accessible through APIs, creating an opportunity to add value by developing user-friendly interfaces.
After all, one of ChatGPT's main innovations lies in its user interface, or rather, its simplicity/ lack of it. Despite being a powerful language model, its success can be attributed to its accessible and user-friendly interface.
Besides, at Eleken we truly understand the power of simplicity in UI/UX design, as we have rich experience in designing AI-powered products.
Take the example of Stradigi AI business platform provider, at least, where we revamped UI/UX to make it understandable for business users.
By building clean and intuitive UI/UX, businesses can make these AI capabilities accessible to non-technical users. In the right niche or industry, companies can charge premium prices for these easy-to-use AI solutions.
To sum up
Getting back to the very beginning, it's impossible to definitively answer whether AI will replace most SaaS products, as we're still in the midst of AI hype.
Anyways, as for this moment, we can make an assumption that while AI can enhance many software offerings, human expertise, problem-solving, and oversight will remain crucial. AI should be seen as a tool to complement existing SaaS solutions, not fully replace them.
Past experiences have made one thing evident: embracing new technologies without a well-defined approach can lead to numerous obstacles and challenges. While a knee-jerk reaction might offer short-term benefits, sustained success requires a deep understanding of the technology, market dynamics, and the value you can bring to the customers.
If you feel that a simple and intuitive UI/UX design can be the value proposition and main differentiation factor of your AI SaaS, feel free to contact Eleken for help.
