Microsoft's software business has a tailwind in AI, says Melius' Ben Reitzes

AI Impact on SaaS Business Model - AI and agentic AI could lead to software operating software, potentially disrupting the traditional seat-based SaaS business model [1] - The disruption caused by AI feels similar to the impact of cloud computing on server vendors, suggesting a potential decline for SaaS companies [2][3] - The rise of AI agents raises the question of who will provide these "software people" and capture the associated margin [4] Competitive Landscape - Microsoft is well-positioned to succeed in the AI agent space due to its comprehensive cloud, tools, reseller network, and ISV partnerships [5] - While Google has excellent AI tools like agent space, it lacks the reach of Microsoft [5][6] - Amazon has AI tools but possesses the least enterprise reach compared to Microsoft and Google [7] Strategic Responses and M&A - SaaS companies may need to shift from seat-based pricing to outcome-based models as agents reduce the need for user interfaces [9] - SaaS companies might engage in mergers and acquisitions to gather more users and offset the threat posed by AI, although asset values may be impacted [9] - Consolidation may become necessary for SaaS companies to thrive in the face of AI disruption [10] Pricing and Market Dynamics - SaaS companies have been raising prices, potentially leading to a backlash and increased adoption of AI agents [7] - The adoption of AI agents may be slow in the short term but could experience rapid growth in the future [7]