AI vs SaaS: Potential Impact of Freemium Model AI is already having an impact on the conventional SaaS. A potential freemium model may make things even more complicated.

There is already a wide debate on whether AI will kill SaaS in the near future. The evolution of AI itself shows that the tech can be more intricate and can perform a lot of different and complex tasks without much of an effort. And it's plausible that it will be pursuing even further complicated tasks and get more integrated with large and small companies and individuals. The rise of AI, however, poses a new challenge for the SaaS firms. And a freemium model used by powerful AI firms could make things more complicated.

India's big on SaaS

India is a big hub for SaaS. According to a Saasboomi report, revenue for the Indian SaaS market may hit USD 100 billion in the next decade, nearly five-fold from the present. The report factors like enterprise AI and cloud adoption, SMB digitization, security and compliance, and government-driven initiatives will drive this growth. It also anticipates startups and tech-first enterprises will outspend traditional sectors.

The above-mentioned freemium model is right now available to end consumers. For instance, Perplexity partnered with Airtel in India to provide free access to telco users. And just recently, OpenAI said it would be making ChatGPT Go available free for one full year to all users in India who sign up during a limited time promotional period, starting November 4.

The playbook is tried and tested, and works for the Indian market, which has remained price sensitive. These companies now look to increase their user base that is already technology savvy to say. And it's plausible that these firms may experiment the same in one way or another for enterprises. In that case, how does a SaaS firm justify a subscription fee? And how do customers churn from a specialized SaaS product that depended on a so-called 'thin wrapper' LLM?

An Optimistic Outlook On SaaS

Experts argue that the true value enterprises pay for goes far beyond generic LLM capabilities and bet on the outcomes. This is where SaaS players may continue to play a role.

Vijeta Soni, CEO and cofounder at Sciative Solutions, explains that while free tools like ChatGPT Go will encourage experimentation, enterprise customers rarely churn solely over access to generic AI.

"Our solutions deliver precision, domain-specific intelligence and compliance - for example, pricing optimisation powered by proprietary datasets and elasticity models. Generic AI may commoditise simple drafting but decision intelligence that drives revenue remains uniquely ours," she added.

On possible shift to AI agents, Soni said, "We are moving beyond augmenting tasks to automating full workflows. Our AI Agent can, for instance, detect margin leakage, simulate competitor responses and automatically recommend optimised price points - all within client-approved guardrails and audit compliance. ChatGPT Go cannot replicate this, as it cannot access proprietary transaction or market data."

Apurv Agrawal, Squadstack.ai CEO and cofounder, further elaborates on the business model: "Enterprises pay for business outcomes, not tokens. Our AI Agents are measured on metrics like connectivity, qualification rate, and CAC reduction, not on usage hours. Behind every conversation lies proprietary infrastructure: 3B+ minutes of structured conversational data that trains domain-specific models, Compliance & security pipelines built for BFSI-grade data, Integration fabric that ties AI outcomes directly to sales and CRM workflows. That's the real moat: outcome, integration, and reliability, not the base model."

Shammik Gupta, founder and CEO at 3-Cubed, believes that free AI doesn't eliminate SaaS—it exposes the shallow end of it. He added that it's like everyone launching D2C brands because building the site looks easy, only to realize the hard part is creating the supply chain and operations.

"Basic wrappers built around prompt engineering will fade. There's still some value in structure and convenience—most leaders won't spend hours writing prompts— but the debate shifts from value created to how little you'd pay a prompt-writing intern. Scale may sustain some such tools. But it won't differentiate," Gupta said.

"The real cost of AI isn't compute—it's confidence. Even when inference is cheap, governance and explainability still define trust. Enterprises don't pay for prompts; they pay for decision logic they can audit and rely on," he added.

Agent Era

According to industry pundits, AI in all likelihood will reshape the conventional SaaS model or see some sort of a hybrid model.

Microsoft CEO Satya Nadella in an interview with Bg2 Pod did acknowledge the potential impact on the conventional SaaS model.

While shying away from predicting an obituary, Nadella said: "The business logic is all going to these agents and these agents are going to be multi-repo CRUD. They're not going to discriminate between what the back end is, they're going to update multiple databases and all the logic will be in the AI tier. Once the AI tier becomes the place where all the logic is, then people will start replacing the back ends."

Another Microsoft senior executive, Corporate Vice President Charles Lamanna, went on to claim that conventional business applications will become redundant by 2023 and that they will be replaced by AI agents.

There are a few industry analysts that back the shift to vertical AI. For instance, Bessemer in a 2024 report said that Vertical AI represented a larger market opportunity than that of legacy vertical SaaS. For uninitiated, Vertical AI is essentially AI applications and platforms purpose-built for specific industries leveraging LLMs and generative models to solve industry-specific problems.

Bain & Company in a post said that generative and agentic AI are having an impact on SaaS by automating tasks and replicating workflows.

"SaaS leaders can manage the risks by identifying where AI can enhance their offerings and where it might replace them. To stay ahead, they must own the data, lead on standards, and price for outcomes, not log-ons, in an AI-first world," the post read.