AI upheaval forces software industry to ask if this is an ‘adapt or die’ moment

Artificial intelligenceAdd to myFTGet instant alerts for this topicManage your delivery channels hereRemove from myFTAI upheaval forces software industry to ask if this is an ‘adapt or die’ momentMarkets weigh whether incumbents will embrace disruption — or be sidelined by AI agents© FT montage/Getty ImagesAI upheaval forces software industry to ask if this is an ‘adapt or die’ moment on x (opens in a new window)AI upheaval forces software industry to ask if this is an ‘adapt or die’ moment on facebook (opens in a new window)AI upheaval forces software industry to ask if this is an ‘adapt or die’ moment on linkedin (opens in a new window)AI upheaval forces software industry to ask if this is an ‘adapt or die’ moment on whatsapp (opens in a new window) Save AI upheaval forces software industry to ask if this is an ‘adapt or die’ moment on x (opens in a new window)AI upheaval forces software industry to ask if this is an ‘adapt or die’ moment on facebook (opens in a new window)AI upheaval forces software industry to ask if this is an ‘adapt or die’ moment on linkedin (opens in a new window)AI upheaval forces software industry to ask if this is an ‘adapt or die’ moment on whatsapp (opens in a new window) Save Richard Waters in San FranciscoPublishedFebruary 24 2026Jump to comments sectionPrint this pageStay informed with free updatesSimply sign up to the Artificial intelligence myFT Digest -- delivered directly to your inbox.Bill McDermott, chief executive of ServiceNow, used an earnings call with Wall Street last month to mount a spirited defence against “speculation that AI will eat software companies”.After a $100bn slide in his company’s market value over the previous year, analysts applauded him for directly addressing the biggest fear stalking his industry. Not that it did any good: ServiceNow’s shares have since fallen a further 22 per cent.Most analysts and software executives predict there will be clear winners, as well as losers, from AI. But few investors are showing the stomach to sort through the wreckage for bargains.The wariness reflects deep uncertainty about what to expect from a fundamental architectural shift in the tech world, of the kind last seen with the move to the cloud. Most software executives, like ServiceNow’s McDermott, are publicly dismissive of the threat. But some are prepared to admit privately that artificial intelligence could represent a much bigger upheaval than anything that came before.“This is more disruptive than the cloud, this is inference, judgment, reasoning,” said an executive at one of the biggest software-as-a-service (SaaS) groups. “Those other big changes happened over several years: this is happening at lightning speed on many fronts.”Investors who write off existing software leaders, however, could be missing a historic opportunity. Past architectural shifts, like the rise of mobile computing and the cloud, have resulted in much larger tech markets than those that came before. Software companies such as Microsoft, Oracle and SAP had to overcome deep market scepticism before proving they would benefit from the cloud. “The business model post-cloud was even better for the incumbents,” said Aaron Levie, chief executive of cloud storage company Box.According to this view, the transition to a new, AI-centric computing platform may cause some upheaval but is far from the existential crisis that the market is pricing in. Companies are wary about uprooting software systems that hold their most important corporate data or embed their core work processes.Established software companies also have extensive sales and support organisations and their products are integrated into wider networks that their customers rely on. The AI companies are “maths nerds, they’re not customer-focused systems builders”, said the SaaS executive.However, more than three years after the launch of ChatGPT rocked the tech industry, the SaaS companies have little to show for their push into AI. Salesforce said last quarter that $540mn of its annual recurring revenue, or 1.5 per cent of the total, came from AI. ServiceNow, meanwhile, said its AI contracts translate into about $600mn of annual revenue, ahead of target, though that is still modest for a company expected to report $16bn of revenue this year.“It takes time, and there’s some volatility along the way,” said Gina Mastantuono, chief financial officer of ServiceNow. But growth from AI is already clear and, with “the transition moving much faster” than previous tech shifts, evidence will continue to mount, she said.Some content could not load. Check your internet connection or browser settings.SaaS companies are also likely to find it harder to generate growth from their older services. Many have relied on price increases and cross-selling to maintain steady growth, said Rishi Jaluria, chief software analyst at RBC Capital Markets. This will be harder to come by as IT budgets are diverted to AI, he added.At the same time, subscription business models tied to the number of workers using the software face pressure as automation takes hold, putting the onus on new types of usage-based revenue tied to AI. The uncertainties caused by a fundamental change in the nature of the industry’s revenues closely echo the move to the cloud, when software companies struggled to persuade Wall Street they could thrive in the new environment.However, the prospect of a bumpy transition to a new business model hardly explains the software rout in the stock market. “This is certainly a headwind, but not necessarily deserving of the sell-offs we have seen in software,” said Jim Tierney, head of US growth investment at AllianceBernstein.Rather, investors are reacting to a deeper risk: that AI will give rise to a new computing platform that favours a new generation of AI companies and pushes the old leaders to the margins.Tierney said the “$64,000 question” now is how many software companies are in danger of being “disintermediated”, as AI agents step between existing software systems and the human workers who used to tap into them directly.Both the AI and software companies say that agents are likely to plug into the existing software systems to accomplish tasks, rather than replacing them. There is disagreement, however, over what this will lead to.Software groups claim it will cement their place at the centre of enterprise IT systems. Anthropic’s announcement last month of a new agent-based system called Cowork may have sent a shiver through Wall Street, but according to Box’s Levie, it will only increase demand for the existing software systems it connects to. However, the agents still present a potential “long-term disaggregation risk”, said RBC’s Jaluria. Companies might continue to hold data in their current customer relationship management system, for instance, but use AI systems to “build custom applications” around that core, he said. That would push the old software into the background, as more value moves to the new agent layer.The technology needed to run the agents, meanwhile, could become increasingly strategic. Working alongside human workers, for instance, agents could gain valuable insights into how businesses operate and decisions are made, collecting new types of data that never found its way into the old systems. Organising the new constellations of agents alongside human workers — known as “orchestration” — could become the key to control of the next computing platform.Several companies are gearing up to claim this new high ground in software. OpenAI, for instance, last month released an agent-based framework called Frontier. The ChatGPT maker claimed its technology would solve what it called the “fragmentation” that exists between today’s “clouds, data platforms and applications” — instead, putting its own technology at the centre.According to ServiceNow’s Mastantuono, however, her company already has much of what will be needed to control these new AI-based work systems. The agents may have the ability to reason and carry out actions, she said, but they will not have the understanding of the broader business context they are operating in or the workflows they are part of. Also, companies such as ServiceNow already have governance and security controls in place that customers will be wary about switching from. “The question is if agents and new platforms are interacting with existing software or replacing them,” said Tierney. “I’m leaning more to the former. What becomes the system of record for a business? It is unlikely to be a half dozen new vendors.”For now, few investors are prepared to bet on that outcome. 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