SaaS Sales. Why is AI slowing us down?

By Michael Tessler, Managing Partner at True North Advisory

I read a recent report by William Blair that made me think about how AI (Artificial Intelligence) impacts sales in the SaaS world. AI is a game-changer with promises to revolutionize areas from customer service to product development. However, in the software sector, AI's rise is contributing to a slowdown in sales. Ironic, but here’s why:

1. Changing Priorities

As companies scramble to integrate AI into their operations, this results in pausing other projects. AI's potential is undeniable, but its implementation is complex and requires significant resources. According to a report by William Blair, roughly 17% of software companies cut their full-year revenue guidance in the first quarter of 2024, as result of a challenging demand environment since budgets are reallocated to AI initiatives.

2. Wait-and-See Approach

AI is still in the early stages of adoption, like the early days of cloud computing and cloud communications. Businesses are hesitant to make long-term commitments to software solutions that might soon be outdated by new AI capabilities. This uncertainty is leading to longer sales cycles and more cautious spending.

3. Platform Consolidation

Many companies are consolidating their software platforms to streamline operations and reduce costs. They prefer comprehensive solutions from established vendors over niche products. As AI becomes a core feature of major platforms, smaller software vendors are struggling to compete, leading to slower sales for these specialized solutions.

4. Increased Scrutiny and Approval Layers

Companies have tightened their budgets, making the approval process for new software purchases more stringent. Deals that once required departmental approval now need sign-off from top executives, adding layers of bureaucracy that slow down the sales process.

5. Focus on Data Readiness

Successful AI implementation depends on high-quality, well-organized data. Companies are investing heavily in data management and readiness, diverting funds from new software acquisitions. According to Deloitte, nearly 70% of enterprises have increased their investment in data management as a prerequisite for AI adoption.

While AI promises to deliver significant long-term benefits, its current impact on the software sector is slowing sales. Companies are navigating a complex landscape, balancing investing in AI with other areas of running their operations.

We'd love to hear your thoughts on the current state of the SaaS sector and AI's impact on sales. Are you seeing similar trends in your industry or organization? How are you balancing AI integration with other strategic initiatives? Share your experiences and insights in the comments below.