Alex Hamilton

One of the biggest open questions with AI is its impact on software business models over time. What seems to be under-appreciated about AI is how it can enable significant TAM expansion for a large number of categories over time when software can deliver outcomes, and not just enable existing work. Right now the dominant business model in SaaS is a per seat model, which inevitably means that the total number of seats you can sell is limited to the number of employees in the organization that are relevant for your particular software. Legal software is roughly capped by the size of the legal team, audit software is capped by the size of the audit team, and so on. The implication of this is that the customer generally *already* has to have not only a need for your solution, but also the existing headcount in the organization to become users of your software. Incidentally, this is often why so many SaaS products tend to go after horizontal productivity categories, because this maximizes the number of potential users you have access to in an organization. AI flips this on its head, especially with the power of AI Agents, and you get a new form of “outcome-as-a-service”. When AI is actually doing the work within the software itself, you're no longer constrained by the number of employees inside the organization to use the actual software. The software is quite literally bringing along the work with it and delivering a particular business outcome. It's clear the full potential of this playing out is not fully understood, as this represents a massive transformation of software as an industry.  When you are no longer constrained by the size of a team or department to use your software, markets are no longer arbitrarily capped in size. In this new era, software that powers a legal workflow actually brings the equivalent of legal knowledge work along with it, and software for audits brings the equivalent of audit work with it. All of a sudden small businesses, under-resourced teams in large enterprises, and all new geographies begin to open to up as markets. AI will enable otherwise niche categories of software to become much larger, and already large categories of software to become even bigger. This transformation is similar to what we've seen in other markets where a new innovation has unlocked the size of a market well beyond its original demand. For instance, most investors and economists would have thought the size of Uber or Lyft's market was the size of the existing Taxi market, when in fact the market size was orders of magnitude larger once the shape of the product changed to make the offering easier to consume. We’ve seen this effect time and time again in areas like SaaS, cloud computing, a variety of mobile categories, and more. We’re only in the earliest of stages of figuring out what this all means for the future of the software business model. Clearly all new variables of monetization will need to emerge when you start to pay software vendors for outcomes as opposed to just the software itself. But inevitably, when you remove the existing dominant constraint of enterprise software, TAM expansion will follow.