Editor’s note: The following article is a commentary on some of the major trends in technology and their broader impact.
The technology to disrupt enterprise software already exists. What’s missing is a forcing feature.
The potential partnership between artificial intelligence and private equity could be just that.
The Information reported Wednesday that Anthropic is in talks with the following companies: black stoneto form a joint venture. PalantirA style model that sells consulting services that integrate Claude into portfolio companies.
The deal makes sense for Anthropic, which just lost its Pentagon distribution channel. But private equity firms risk cannibalizing their own businesses and accelerating the shakeout of software-as-a-service (SaaS) already underway.
For companies like Blackstone, the math is more forgiving. Its portfolio spans manufacturing, healthcare, real estate, financial services and infrastructure.
If Claude can reduce costs for hundreds of companies in these industries, Blackstone has no reason to hold back. However, many of the licenses canceled by these companies likely belong to software companies owned by other PE firms, whose entire businesses depend on maintaining regular software revenue.
Both Thoma Bravo and Vista Equity Partners call themselves one of the largest software-focused asset management firms. Their bottom line is now in the crosshairs. Claude Code can approximate what many horizontal SaaS tools do, such as project management, basic customer relationship management, analytical dashboards, and even parts of HR and finance workflows.
For example, if a Blackstone-owned manufacturer were to use Claude to build a custom internal tool instead of renewing its Smartsheet license, Blackstone would save money, but the Blackstone-owned software company would lose a customer.
But PE is optimizing the entire fund, not a single software company at risk, so they end up making that trade every time.
Private equity could be the accelerator SaaSpocalypse has been waiting for.
PE firms have board control, internal rate of return targets, and a ticking clock. When a joint venture with a top AI lab gives the largest companies a turnkey way to reduce software spend across their portfolio, they will move.
Private equity firms introduced cloud software to their portfolio companies a decade ago, leading the last big wave of enterprise technology adoption. This transition replaced on-premises systems with SaaS and expanded the overall software market.
This time, the dynamics are reversed.
Private equity is essentially pushing AI as a service, which completely eliminates the need for certain categories of software. Replacement cycles that can take five years in a typical corporate implementation can be reduced to 18 months within a PE portfolio. This is because companies have the power to make changes and the incentive to act quickly.
PE firms should be able to see this far into the future, especially if possible.
Orlando Bravo of Thoma Bravo has publicly argued that AI is a tailwind for enterprise software, and that adding intelligent capabilities can make existing products even more valuable. He told CNBC that the company has about the same number of developers across its portfolio as it did a year ago, and is actually doing more development.
However, Thoma Bravo believes that if they don’t implement AI in their portfolio companies and start implementing AI reductions, they will become obsolete. this week, atlassian In order to raise funds for AI investment, the company cut approximately 1,600 employees, or one-tenth of its workforce. Stocks went up.
A few weeks ago block Shares rose 17% after the company announced 4,000 AI-related layoffs. Wall Street has already made it clear whose side it is on. Companies that scale back in the name of AI will end up paying more than those that defend old models.
This is an unpleasant paradox. Thoma Bravo needs to deploy AI across its software company to stay competitive and continue to grow profits. But the more AI is introduced throughout the economy, the less businesses will need the horizontal software products Thoma Bravo sells.
Promoting AI accelerates your own destruction. Don’t push it. Then a diversified company like BlackRock could introduce it from the other side and remove your software from their portfolio companies while you stand still.
The horizontal SaaS companies most at risk are those with customers in diversified PE portfolios with vehicles like a potential joint venture with Anthropic and incentives to replace them.
Private equity has built the SaaS installed base. It may also be something that takes it away.
