I don’t have the technical clout of the Straw folk on AI, but I’d like to address the issue through the eyes of the many millions of small and medium business owners (SME’s) who buy SaaS products, and specifically, I guess I am referencing XRO and to a lesser extent RKN. SME’s being my area of expertise in my business career.

The best business advice I’ve ever been given was:

Specialists make more money than generalists; do what you do well, do it better than everyone else, and buy everything else at the ‘corner store’.

Some other thoughts which are on the margin of this topic:

-         Line extension tends to be a distraction to normal business.

-         The acquisition of another business in the same industry tends to be both a distraction & a potential opportunity, but more often than not results in disappointment; usually because of overestimating the potential of the new business or division and one’s ability to control a larger empire. Throw in the blending of two different cultures and the weeding out of uncommitted, incompetent inherited staff, and it’s bloody hard to make acquisitions work properly.

-         Acquiring a business or starting a business in a completely new field is fraught with disaster – the statistics tell us so. And isn't this what taking on one's own software responsibilities is?

In any group, there are various subsets. The largest subset is the one that doesn’t swim on the first wave to the beach (these are the adventurers), nor are they on the last wave to the beach (these are the laggards). In other words, they are the very large rump in the middle.

Relative to AI, the ‘first wave to the beach’ people are the geeks, the computer heads, the excitement seekers, and those who are bored by repetitive, system-bound work processes. These people find the newest thing absolutely dizzyingly exciting, and they are likely to get distracted by it. This group of people will already be in love with AI and are thinking about all possibilities.

They believe they can use it to change how they or an industry conducts day-to-day business, and they may be correct. There’s no pulling back these people. They are like moths to a flame; they will fall in love with a newer AI type product, which may or may not fully replace an existing SAAS subscription model.

But let’s examine this individual. Firstly, they fall in love with their own ideas, and confirmation bias fuels their enthusiasm. Secondly, and I speak from 45 years of experience running my own businesses, they have almost zero knowledge of cost/benefit analysis and no knowledge whatsoever of ‘hard costs and soft costs’.

Let me explain - hard costs are easy to work out - the hard dollars are withdrawn from the bank. Soft dollars, in my experience, are often many times higher than the hard dollars because they are disguised as other classifications.

Wages, as a category, are a great example; specifically, wages and other employment benefits paid to people as they examine the new AI idea to replace the existing SaaS.

What about the lost revenue and profits of downtime, to name yet another.

In one of my companies, a move of premises was going to cost $150,000 ($60,000 in soft costs) just to transfer the computer configurations - almost two years' rent! My ‘firecrackers in his pants’ manager hadn’t thought of that. It didn’t happen, and the thinness of the carpet in our existing premises complemented the thickness of the yearly dividends (love this expression and have quoted it many times).

In my experience, the very great rump of people who are not on the first or last wave to the beach are more interested in what they do on a day-to-day basis and are fully concentrated on that process and whilst being aware of improvements made via AI, they are not prepared to take the early risk in assessing a substitute SaaS product for fear of losing sight of what they do best, their staff losing sight of what they should be doing, and the enormous pain and suffering of changing from one regimented way of doing business to another. 

My belief is that their preferred approach will be to continue using their existing SaaS model, while putting additional pressure on the developer of that SaaS model to incorporate any improvements that AI might dream up. In other words, they will continue to buy at the ‘corner store’ because it is less disruptive to the ordinary course of business.

Also, where is the sense in building one product (a new AI system) that requires enormous upkeep on legal and other extraneous legislative matters? Surely Henry Ford proved the power of mass production over 100 years ago.

I have no way of knowing whether these figures are correct or not – it’s just my gut feel. I would think that the first wave to the beach people would make up 15 to 20% of the marketplace, equally so for those on the last wave to the beach thereby suggesting that the great rump of people 70% to 80% of the marketplace are content to stay in their own lane, and whilst wishing to see business improvements, they don’t see themselves diverting attention to being a trailblazer to do so and are quite prepared to pay modest subscription fees, provided that the developer of the SaaS software is on guard to up his or her game to include any and all improvement suggested by these alternative AI programs.

Obviously, the smarter and more sensible people in this middle group will perform a cost-benefit analysis of switching from their existing SaaS program to another. My belief is that it will be difficult to make these numbers work, particularly in the short term.

Given that the average tenure of a CEO and CIO is around five years, I believe this is likely the period when an ‘Indian summer’ may occur, during which SaaS programs will continue to operate, albeit at lower margins.

So, where is this heading?

I know small-and medium-sized business owners. I know how they think. They will not desert XRO or RKN. It's just not worth it to them for a few bucks saved. This current madness is a good buying opportunity.