SaaS will survive AI if it is low ARPU and high usage

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 53:41

   And specifically, as you think about database, fabric, security, Office 360. And then second question, I guess, is what are you doing to make sure that software is not disrupted, but is instead superpowered by AI? Yeah, I think that's right. So the last time we talked about this, my point really there was the architecture of SaaS applications is changing because this agent tier is replacing the old business logic tier.

2. 54:09

   And so, because if you think about it, the way we built SaaS applications in the past was you had the data, the logic tier, and the UI all tightly coupled. And AI, quite frankly, doesn't respect that coupling because it requires you to be able to decouple, and yet the context engineering is going to be very important. I mean, take something like Office 365. One of the things I love about our Microsoft 365 offering is it's low ARPU, high usage, right?

3. 54:38

   I mean, if you think about it, right, Outlook or Teams or SharePoint, you pick Word or Excel, like people are using it all the time, creating lots and lots of data which is going into the graph. And our ARPU is low. So that's sort of what gives me real confidence that this AI tier, I can meet it by exposing all my data. In fact, one of the fascinating things that's happened, Brad, with both GitHub and Microsoft 365 is thanks to AI, we are seeing all-time highs in terms of data that's going into the graph or the repo.

4. 55:13

   I mean, think about it. The more code that gets generated, whether it is Codex or Cloud or wherever, where is it going? GitHub. More PowerPoints that get created, Excel models that get created, all these artifacts, and chat conversations. Chat conversations are new docs. They're all going in to the graph. And all that is needed, again, for grounding. So, that's what, you know, you turn it into a forward index, into an embedding.

5. 55:41

   And basically, that semantics is what you really go ground any agent request. And so, I think the next generation of SaaS applications will have to sort of, if you are high ARPU, low usage, then you have a little bit of a problem. But if you are, we are the exact opposite. We are low ARPU high. usage. And I think that anyone who can structure that and then use this AI as, in fact, an accelerant, because, I mean, like, if you look at the M365 copilot price, I mean, it's higher than any other thing that we sell. And yet it's getting deployed faster and with more usage. And so I feel very good at, oh, our coding, right? Who would have thought? In fact, take GitHub, right? What GitHub did in the first, I don't know, 15 years of its existence or 10 years of its existence, it was basically done in the last year, just because coding is no longer a tool. It's more

6. 56:33

   a substitute for wages somewhere. And so it's a very different type of business model. Kind of thinking about the stack and where value gets distributed. So until very recently,