SaaStr Annual 2024: AI Productized Services: How Outcome as a Service Can Be The Next Unlock for Software with Bessemer Venture Partners

SaaStr Annual 2024: AI Productized Services: How Outcome as a Service Can Be The Next Unlock for Software with Bessemer Venture Partners

1. AI Productized Services: How outcome as a service can be the next unlock for software Anant Vidur Puri Bessemer Venture Partners

2. Wait, why are we talking about services?

3. Service spend vs. Software spend in the U.S. Source: Source: US Bureau of Economic Analysis USD GDP 2023 (in Trillions)

4. Business and Professional Services represent >$3 Trillion of US GDP !  ~10x the size of the software industry

5. CFOs cut software spend between upto 30% in 2023 - # 1 reason, RoI /Cost https://futurecfo.net/cfos-cut-software-spend-between-10-to-30/

6. So is SaaS dead? Let’s find out https://futurecfo.net/cfos-cut-software-spend-between-10-to-30/

7. $ ARR in Millions Years from $100M to $1B Source: Bessemer Analysis AI NATIVE OpenAI hits $3.4B ARR in 2024; AI Giants drive revenue at warp speeds

8. Multimodal models are giving AI eyes, ears, and voices – unlocking new capabilities and opportunities First Wave – Text Text and image generation Data extraction and document search Chat automation Next Wave – Multimodal Hybrid apps across modalities like audio, image and video Agentic workflows Conversational Voice Future... Fully Autonomous agents Video generation Embodied AI 2022 2024 202X

9. AI is converting human services spend into outcomes driven software spend Transcription Report writing Visual inspection Call answering Tutoring Training Engineering / Drafting Negotiation Interviewing / Recruiting Many more... Services being automated Multimodal-First Industries: -Medicine -Public Safety -Construction -Home Services -Education -Real Estate -Recruiting -Manufacturing  -Engineering -Retail -Media and Entertainment Text-First Industries: -Legal -Content Marketing -Chat-based CS

10. Three new outcome business models AI tools supercharge workers that by automating tasks and workflow AI tools that replace workers by automating end-to-end workstreams AI native services businesses that automate traditionally outsourced services Copilots Agents AI-enabled services

11. Three new business models AI native services businesses that automate traditionally outsourced services AI-enabled services Outcome Human + Agent + Workflow

12. The rise of new age service firms: Efficient, accurate, human Source: Public Company Reports; BVP Desk 1. Software-equivalent gross margins, vs. 40% in traditional services 2. Outcome-based pricing replacing labor -based pricing 3. Ensured AI accuracy via human oversight 4. Efficient innovation  with AI freeing human creativity

13. Human Writer (Creator) Human Editor (Quality Control) + = 30% Gross Margin Business Human Writer (Creator) AI Editor (Quality Control) + = 50% Gross Margin Business In 2 years, AI has transformed the content business AI Writer (Creator) + Human Editor (Quality Control) = 75% Gross Margin Business

14. Github Copilot vs. Tabnine Installs for VSCode AI turns all of us into 10x developers ~26.9M software engineers globally ~4.4M software engineers in the U.S. Source: Wayback machine; Github Copilot and Tabnine installs on VSCode

15. End-to-end voice agents will create massive opportunities as the next wave in voice augmented humans Modern ASR / Transcription Applicable to ALL businesses, not just enterprises Applicable to far more use cases Potential to replace headcount / do the work Very high ROI applications Legacy IVR End-to-End Voice Agents $5B+ Market, poor customer satisfaction, limited customers/use cases

16. End-to-end voice agents will create massive opportunities as the next wave in voice augmented humans REAL ESTATE CAR DEALERS RECRUITING MEDICAL CALL CENTER HOME SERVICES RESTAURANTS LOGISTICS

17. Vertical AI driven outcomes: Early signs of promise BASED ON BESSEMER’S DATA, OUR COHORT OF VERTICAL AI STARUPS WITH MEANINGFUL SCALE (> $4M+ CARR) SHOW EARLY SIGNS OF BEING ENDURING BUSINESSES ~80% ~400% YOY Growth Rate of Vertical AI cohort ~65% Gross Margin of Vertical AI cohort, 1.1x burn ratio ACV of initial cohort of customers relative to their core workflow systems 

18. AI + Humans is the future LLMs are just the beginning; this is the AWS moment for AI. Best-in-class companies will use a combination of humans + AI to automate, speed up, and increase the accuracy of services. Workflow, process automation, and long-term specialization will be new moats. Every service will be automated through AI + Software + Workflow. TLDR: Identify every human led service inside your business (first) and customer facing (second) and supercharge with AI + workflow

19. Wrap vs. App Battle! Questions we’re asking How much R&D effort was required for MVP? How well does GPT-4o perform core action? What % of current/future product roadmap is standard software vs. LLMs? How frequent is user need ? Is there a real data moat ? [note: we expect this to be rare!]