How could vertical AI agents surpass SaaS in impact? AI is evolving at an extraordinary pace, with breakthroughs emerging every few months that redefine its capabilities and create new opportunities for entrepreneurs to build disruptive businesses.
At the forefront of this transformation is the rise of AI agents—autonomous systems designed to understand, reason, and act across various domains. Among them, vertical AI agents stand out by specializing in entire business functions, seamlessly integrating into workflows, and automating complex decision-making.
Unlike traditional SaaS, which provides tools that require human intervention, these vertical AI agents operate as proactive collaborators, fundamentally reshaping how enterprises function and compete.
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The Competitive Landscape of AI
AI is advancing faster than many anticipated, with the rise of foundation models that are challenging OpenAI’s dominance.
The competition in the AI market is beneficial, offering consumers more choices while creating new opportunities for startup founders.
Investors like Gary, Jared Friedman, and Diana, who have collectively funded hundreds of billions of dollars in startups, recognize the transformative power of these vertical AI agents.
The Market Potential of Vertical AI Agents
Jared is particularly excited about vertical AI agents, predicting that they will give rise to companies worth over $300 billion. However, many young startup founders are yet to grasp their full potential.
This hesitation mirrors the early skepticism around SaaS, which was initially underestimated before becoming a dominant force in Silicon Valley.
Lessons from the SaaS Boom
SaaS has been a major focus of venture capital over the last two decades, attracting more than 40% of VC funding and producing over 300 unicorns. The real catalyst for this boom was the introduction of XML HTTP request in 2004, which enabled rich internet applications.
This technology shift moved software from desktop installations to web-based applications, setting the stage for mass SaaS adoption.
One of the first people to recognize the potential of SaaS was Paul Graham, who used this technology to build ViaWeb (an online store similar to Shopify) in 1995. However, the lack of robust web technology at the time delayed the success of early SaaS applications. As the infrastructure improved, SaaS took off.
AI as the Next Computing Paradigm Shift
The current wave of Large Language Models (LLMs) is creating a shift similar to what XML HTTP request did for SaaS.
Just as cloud and mobile technologies in 2005 opened up new opportunities, today’s AI advancements are unlocking entirely new markets.
Startup Categories and AI’s Place in the Market
Historically, startup ideas have fallen into three main categories:
- Obvious mass consumer products – Like Google Docs, email, and chat, where incumbents dominated.
- Mass consumer ideas that were not obvious at first – Examples include Uber, Instacart, and Airbnb, where startups won.
- B2B SaaS – The biggest driver of unicorn companies, with Salesforce leading the way.
The rise of vertical AI agents is poised to create a fourth category, mirroring the growth of B2B SaaS. These AI agents will specialize in specific industries, providing deep expertise and automation that general AI tools cannot match.
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The Innovator’s Dilemma and AI’s Competitive Edge
While Apple, Google, and other tech giants are investing in AI, they face the innovator’s dilemma—a reluctance to disrupt their own profitable businesses.
This hesitation creates an opening for new startups to challenge incumbents. Just as Google dominated search but now faces competition from Perplexity AI, today’s AI landscape remains open for disruption.
Moreover, regulatory risks and internal bureaucracy prevent large companies from taking the bold risks that founders like Travis Kalanick (Uber) were willing to take. This reluctance provides an advantage for agile AI startups to innovate and scale.
Why Big Companies Didn’t Dominate B2B SaaS—and Won’t Dominate Vertical AI
One reason large tech companies didn’t move into B2B SaaS is the need for deep specialization. Companies like Gusto succeed because payroll and compliance are highly complex—something a generalist tech giant like Google wouldn’t prioritize.
The unbundling of enterprise software further enabled SaaS startups to thrive, and a similar trend is expected with vertical AI agents.
The Future of AI: Vertical Specialization
As AI continues to evolve, vertical AI agents will carve out specialized niches, disrupting traditional enterprise workflows. Just as SaaS revolutionized software delivery, AI-first companies will redefine how businesses operate.
The next wave of billion-dollar startups will likely emerge from founders who recognize the transformative potential of vertical AI solutions before the rest of the world catches on.
The lesson from SaaS is clear: technology shifts create massive opportunities, and those who move early can build the next generation of industry-defining companies.
The future of AI is not just about general intelligence—it’s about highly specialized, deeply integrated AI agents that drive real business outcomes.
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