It may not come as much of a surprise, but according to the latest SaaS market research, all signs point to the use of Artificial Intelligence (AI) as a growth driver in a market that’s otherwise facing a slew of uphill challenges.
In the latest SaaS Benchmarks Report from OpenView, even companies that had seen sterling growth in 2021 and 2022 have started facing stagnation over the past year. At the same time, profitability (as it relates to free cash flow) is up across the board for most SaaS companies as businesses have reorganized their operations in response to challenging market conditions.
In total, the growth rate for both All SaaS and All PLG (Product-led growth) companies have trailed year-over-year in OpenView’s survey: All SaaS growth rates dropped from 28 percent in Q2 2022 to 21 percent in Q2 2023, while All PLG saw an even deeper decline of 45 percent during Q2 2022 compared to only 29 percent in the same period this year.
Despite downturns in growth for the overall SaaS market, however, there are of course outliers.
AI becomes table stakes for C-Suite buyers
Chief among the outliers is OpenAI, which is set to reach a $1billion run rate this year after achieving just $28 million in revenue in 2022. Not only did the company’s ChatGPT generative AI become a consumer phenomenon during 2023, but it infiltrated the C-Suite, making AI and machine learning qualities more-or-less table stakes for SaaS adoption.
As a result, OpenView found that AI-native companies surveyed were more than 3.3 times likely to be outliers—that is, achieving higher growth relative to overall market declines—in 2023. Similarly, non-AI-native companies that launched and monetized AI products were 1.5 times more likely to see growth prospects improve year-over-year.
AI wasn’t the only factor that characterized SaaS growth in 2023 either. The benchmark also flagged Vertical SaaS companies—that is, solutions targeting specific industries, especially where tech innovation has lagged to-date—as actually being the dominant outliers for growth in 2023. While many of these solutions embraced AI as a matter of course, it was their ability to be point-specific in solving acute industry challenges that helped them capture growth in the face of market headwinds.
Still, while adding AI products and services (if not branding) to your solution suite may have helped your business buck market trends in 2023, the majority of SaaS leaders continue to view AI as nascent within their tool kit.
AI still in trial-and-error phase
While 77 percent of SaaS companies have either launched AI features or have applied AI to their product roadmap in the past year, only 15 percent have been able to monetize AI.
All of that is to say that the majority of SaaS companies are still just testing out AI to find out the most impactful applications, despite a hunger from buyers in the C-Suite. This indicates that the majority of SaaS companies are still very much testing out AI to understand what the most powerful features will be for their customers.
As such, many startups are still very much in the research and development phase when it comes to leveraging AI and ML techniques to enhance their product offerings. While broad-based generative AI tools are giving prospective customers a taste for the speed and agility that AI-driven SaaS tools could deliver, many SaaS companies are wise to continue refining their offerings to avoid delivering incomplete solutions.
At Boast, we partner with leading SaaS startups across North America to help them optimize their R&D processes with an eye toward their product runway, prioritizing activities that will maximize access to non-dilutive funding while ultimately bolstering their product development.
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