The State of SaaS Disruption 2025 | Part 3

Vulnerability & Resilience: Who Survives the Great SaaS Shake-Up?

In the first two parts of this series, we established that AI is not just enhancing SaaS—it’s rewiring its very foundation. The commoditization of software development and the rise of the “headless” Agentic paradigm mean that the old rules for success no longer apply.

But this AI Tsunami will not impact all companies equally. For every SaaS business built on shifting sands, another stands on a bedrock of defensible value. As I’ve seen in every major technology cycle, from the shift to the cloud to the rise of mobile, moments of great disruption create a clear bifurcation in the market: there are those who are vulnerable and those who are resilient.

The strategic imperative for every leader and investor is to honestly assess which category they fall into. This post will provide a framework for that assessment. We will dissect the anatomy of a vulnerable SaaS business and contrast it with the fortress-like qualities of those built for resilience in the age of AI.

Key Takeaways for the C-Suite & Investors

• Horizontal SaaS is Ground Zero for Disruption. General-purpose tools with undifferentiated features (e.g., basic CRMs, project management) are highly susceptible to being replicated by AI or bypassed by agents.
• Vertical SaaS (VMS) is Inherently More Resilient. Deep domain expertise, proprietary industry data, and high regulatory barriers create a powerful defensive line that general-purpose AI cannot easily breach.
• Your Business Model is a Liability if it Relies on Manual Work. If your product’s core value is helping users perform tasks that AI can now automate—like manual data entry or simple content creation—you are on a collision course with obsolescence.
• The New Moats Are Not Built with Code. Defensibility is shifting from what your software does to what unique assets it leverages. This includes proprietary data, deep workflow integration, network effects, and brand trust.

Anatomy of a Vulnerable SaaS Business

The disruptive forces of AI are creating a clear profile of the companies most at risk. In my advisory work, I see these patterns emerging as the most significant threats to long-term viability. If your business shares these characteristics, urgent strategic action is required.

1. The Thin Wrapper Problem

These are companies whose product is essentially a thin user interface built on top of a third-party AI model (like OpenAI’s GPT). While they may have enjoyed first-mover advantage, their position is incredibly precarious. As the underlying foundation models become more powerful, accessible, and commoditized, there is little to stop customers—or the AI platform itself—from replicating the functionality at a fraction of the cost.

2. Reliance on Manual Data Entry and Processing

For years, a core value proposition of many SaaS tools was to provide a structured environment for humans to input and manage data. This is now AI’s sweet spot. Consider a traditional CRM: a salesperson listens to a call and then spends 15 minutes manually updating fields. Today, an AI agent can listen to the same call and automatically populate the CRM with a summary, action items, and updated contact information. The SaaS tool that merely facilitates the manual version of this workflow is facing extinction.

3. Undifferentiated Horizontal Offerings

Horizontal SaaS products are designed to serve a wide range of industries (e.g., generic project management tools, basic analytics platforms). This was once a strength, allowing for a massive Total Addressable Market (TAM). In the AI era, it is a critical vulnerability. These tools often lack the deep, contextual data of a specific industry, making their core logic easier for general-purpose AI to replicate. Why pay for a separate tool when an AI agent connected to your data warehouse can perform the same analysis on command?

4. A Moat Built Primarily on UI/UX

As we discussed in Part 2, the Agentic Shift threatens to unbundle the UI from the underlying application logic. If your primary competitive advantage is a “better user experience” rather than unique data or functionality, you are at high risk. If an agent becomes the primary interface, your beautifully designed UI may never be seen by the end-user, rendering your key differentiator moot.

These characteristics collectively paint a target on the back of many established SaaS companies. To make this tangible, I’ve created a visual framework that maps these vulnerabilities across different B2B SaaS segments. This interactive matrix clearly shows which business models are on shaky ground and which are built on a more solid foundation.

Explore the Interactive AI Disruption Vulnerability Matrix Here

The Fortress: Why Vertical SaaS is Built for the AI Era

In stark contrast to the vulnerabilities of horizontal platforms, Vertical Market Software (VMS) is uniquely positioned to thrive. VMS providers focus on solving the specific, complex problems of a single industry, such as healthcare, construction, or finance. This focus creates three powerful, AI-resistant advantages.

1. Deep, In-built Domain Expertise

VMS solutions are not just tools; they are encoded with deep knowledge of industry-specific workflows, regulatory requirements, and operational nuances. A general-purpose AI trained on public internet data cannot grasp the complexities of clinical trial management or construction bidding regulations. This domain expertise, built over years, is a formidable barrier to entry.

2. The Unbeatable Moat of Proprietary Data

VMS platforms often serve as the system of record for their clients. This means they accumulate vast quantities of valuable, industry-specific data that is simply not available anywhere else. This creates “data gravity.” An AI model trained on a VMS provider’s proprietary dataset of legal case files or financial compliance records will dramatically outperform a general model. This allows VMS providers to build hyper-specialized AI features that are truly unique and defensible.

3. The High Walls of Trust and Compliance

In highly regulated sectors, trust is not a feature; it is a prerequisite. Established VMS providers have spent years building relationships and navigating stringent compliance mandates (like HIPAA in healthcare). A new AI-native startup cannot easily replicate this trust, creating a significant moat that protects incumbents.

While VMS is not immune—as shown by ChatGPT’s impact on education-focused companies like Chegg—it is far better positioned to augment its offerings with AI, deepening its value proposition rather than being replaced.

Redefining Defensibility: The Moats That Matter Now

The great SaaS shake-up is forcing a re-evaluation of what constitutes a truly defensible business. The moats of the past—a faster development cycle, a slicker UI, a longer feature list—are eroding. The durable moats of the AI era are built on different foundations:

• The Data Moat: Access to unique, proprietary data that creates a compounding advantage by improving your AI models.
• The Workflow Moat: Deep entrenchment in a customer’s mission-critical daily operations, creating impossibly high switching costs.
• The Trust Moat: A hard-earned reputation for security, reliability, and compliance in a specific domain.
• The Ecosystem Moat: Strong network effects and deep integrations that make your platform the central hub for a particular business function.

Ultimately, the SaaS market is splitting in two. On one side are the vulnerable, undifferentiated tools facing a painful race to the bottom. On the other are the resilient, specialized platforms that are using AI to solidify their leadership. The time to choose which side you’re on is now.

Coming up in Part 4: We will shift from analysis to action. In The Investor’s Playbook: How to Bet on the New SaaS Landscape, I will provide a concrete due diligence framework for identifying the winners and avoiding the losers in this new paradigm.