SaaS Companies: Don’t Underestimate Your Moat—Or Your Alligators

Srinivas Velamoor, President & CEO NextGen Healthcare.

gettyOver the past two decades, software-as-a-service companies have built some of the world’s most valuable technology franchises. In 2009, Salesforce made history as the first cloud computing company to achieve $1 billion in annual revenue. This was hailed as a victory for all software-as-a-service companies, which were emerging as industry darlings. By 2018, Salesforce would exceed $10 billion in annual revenue—further evidence that SaaS was king.

Of course, all kingdoms are susceptible to invaders, and SaaS is no exception. Once artificial intelligence was everywhere with the 2022 introduction of ChatGPT, companies of all sizes and even aspiring entrepreneurs with no tech background suddenly had an unprecedented ability to build software quickly. Venture capital funding for AI startups exceeded $100 billion by 2024, and many of these newcomers are still shaking up the industry in meaningful ways.

While it’s true that AI is reshaping software development and lowering barriers to entry, reports of SaaS’s demise are greatly exaggerated. Headlines that herald a “SaaS-Pocalypse” or ask “Is SaaS dead?” tell just one part of the story. The SaaS companies that are here to stay are the ones who have not forgotten the value of their “moat,” to borrow a term from investing’s “philosopher king” Warren Buffett. I’d argue that the most protective moat for established SaaS companies is their incumbency advantage, something AI startups lack.

And, for the typical SaaS company, four trusty alligators further defend that moat: domain expertise, enterprise-grade scale and results, context and distribution. The companies that are familiar with this moat—and feed their resident alligators—will be well-positioned to safeguard their kingdoms.

• Domain expertise: SaaS companies have years of understanding of how their clients operate their businesses. They understand clients’ workflows, workloads, success metrics and most persistent challenges. That level of insight and relationship history is impossible to re-create overnight.

• Enterprise-grade trust and results: Businesses need reliable outcomes to successfully run their operations. They cannot afford to have models that are untested or unreliable. While many AI startups are still maturing their governance, established SaaS companies often provide enterprise-grade reliability, security, compliance and operational maturity.

• Context: SaaS companies own years of data and, even more importantly, the ability to translate that data into meaningful business context. AI-native startups can generate insights quickly, but they often lack the years of historical customer relationships and operational context needed to translate information into sustained business value.

• Distribution: SaaS companies have spent years—often decades—building sales, client success and operational teams that know how to deliver innovation, support adoption and drive the change management needed to unlock value.

If you need evidence that SaaS can successfully defend its moats, just look at some of the biggest “kingdoms.” Microsoft reported in July 2026 that its cloud computing platform Azure had achieved a new milestone of $100 billion in annual revenue. HealthStream announced a new record for quarterly revenue earlier this year, and Amazon Web Services (AWS) continues to be the most successful segment of Amazon’s business. And what about Salesforce? In March 2026, the company announced an expansion of its existing partnership with Formula 1 (F1) to introduce a new fan-companion AI agent that leverages years of data and industry expertise to enhance the experience for F1’s 827 million devotees worldwide. F1 clearly saw the value in sticking with a proven partner, with F1’s Chief Commercial Officer Emily Prazer saying in a press release: “In Salesforce, we have found a perfect partner who shares our dedication to using world-class technology to connect fans and improve the way they consume the sport.”

Now, how can SaaS companies go about feeding their resident alligators to keep them in fighting shape? Here are a few key actions that every SaaS company can take to strengthen their incumbency advantage:

• Strengthen domain expertise: As AI startups build their rosters, SaaS companies should focus on codifying the years of knowledge that they’ve earned the hard way. This could look like investing in and promoting internal subject-matter experts, documenting best practices, creating subject-matter Centers of Excellence and embedding that expertise directly into workflows.

• Double down on enterprise: Right now, every SaaS company should be doubling down on performance transparency by educating clients, prospects and the market on how they are creating measurable value. Strong governance, risk assessment and responsible AI practices—demonstrated with clear proof points—will help companies retain hard-won client trust.

• Expand business context: Like kingdoms of old, SaaS companies are sitting on treasure troves of data. Today’s opportunity is to put that data into action by creating proprietary knowledge graphs, connecting workflows and productizing context to deliver relevant insights and support better business decisions. Forward-thinking companies are evolving beyond systems of records into systems of context that turn data into informed action.

• Modernize distribution: AI disruption means SaaS companies will need to invest in updated training for sales and client success teams so they can continue supporting clients in this new era. They should expand existing change management playbooks to address the unique demands of AI adoption and consider creating value realization squads that provide hands-on training to help clients translate new capabilities into measurable outcomes.

History has taught us that all kingdoms will eventually face disruption. Fortunately, established SaaS companies are encircled by the moat of incumbency advantage and the four hungry alligators of domain expertise, enterprise-grade trust and results, context and distribution.

AI is changing how software is built, but it is not changing what customers ultimately value: trusted partners who understand their business, deliver measurable outcomes and continually innovate. Companies that invest in those enduring advantages will find that their moat remains deeper than many newcomers expect.

Keep defending your moats, and SaaS will remain well-positioned to protect its territories.

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