[S1.05] AI Software as a Service (AI SaaS)

"Software is a great combination between artistry and engineering"
- Bill Gates, Former CEO of Microsoft

We are living in a world full of software around us, and even now it is very difficult to imagine how the world operates without software. From 1946, software becomes the innovation sign of the human revolution. So, with the revolution of AI, of course, AI Software as a Service has easily become the hottest business model among our 06 business models in our list. This topic is the 5th topic of our series of AI Business Models, with a detailed guide and explanation.

If you are not clear about Software as a Service (SaaS), we recommend to visit to our 1st blog S1.01: AI Business Models Overview to capture the concept in detail before continuing this blog.

AI Business Model Blog Series

After years of serving our clients in the AI domain, we are impressed with many different AI approaches to products/services from our clients. So we love to classify them as a Blog Series for AI Business Models, our 1st Blog Series (S1) to bring a summary on this topic and share it with any AI founders, or entrepreneurs out-there who dream of building their own AI kingdom. Some may already have their business but they can also refer to market research to grow their AI business.

Series name: AI Business Models, a detail guide and explanation
Series blogs:
- S1.01: AI Business Models Overview
- S1.02: AI Education Business Model
- S1.03: AI Consultant Business Model
- S1.04: AI Development Agency Business Model
- S1.05: AI Software as a Service (AI SaaS) (this blog)
- S1.06: AI Platform as a Service (AI PaaS)
- S1.07: AI Infrastructure as a Service (AI IaaS)
- S1.08: AI Business Models transition possibilities

Key components of success AI SaaS

ELSA Speak was recognized by Forbes as one of the 4 companies utilizing Artificial Intelligence to change the world and was ranked in the Top 5 AI Apps, along with Microsoft’s Cortana and Google’s Allo. From the unique solution of English Speech Recognition, an AI Model processing with voice and providing the English pronunciation score and highlighting pronunciation improvements, become a famous AI SaaS with $60M fundraising, serving 50M+ users from 160+ countries.

Sharp ideas and powerful AI solutions are 02 must-have conditions for any successful AI SaaS company. The idea is important to direct your business model the same as other SaaS companies, but with an AI solution, you own a very secret technology that is not easy to copy by any competitors. In the AI SaaS market, having a great idea is a knife but the AI solution is our shield which protects you from competitors. This is so true in the flat world, especially in SaaS, you may have a great idea but as long as you publish for business, everyone can learn and try to copy you and they may have more resources (both budgets, networks, talents, ...) to fight again you. But in AI SaaS, with a core AI solution, the game becomes more fair with an AI secret solution. Furthermore, some of the AI solutions need time to collect data, train and improve, so in the AI SaaS, there are fewer shortcuts because a good AI Model needs time.

AI SaaS vs AI-powered Software

"Software is eating the world, but AI is going to eat software"
Jensen Huang, CEO NVIDIA

Jensen Huang is totally right on the above quote, AI is a good probiotic for software bodies. We can feel the race of AI products, for just in 2023, the number of AI products is more than double the number of all the AI products built before 2023.

The term "AI Product" may be quite general, to avoid any confusion, we should split this into:

• AI SaaS:  The software where the AI Model(s) play the role of the principal features. Example: Elsa Speak, ChatGPT, ...
• AI-Powered Software: The software where the Principal features is not AI, but there are AI Model(s) in the product to support and empower customer experiences, and service performance, ... For Example, Netflix's core feature is video on demand, but the product has some AI features such as Product recommendation system.

In the context of this blog, we are focused only on AI SaaS which is a new business model with AI.

Step to build an AI SaaS Product

A little different with SaaS software, as AI SaaS Product must contain AI Model as the principal feature so before the package a completed solution, normally you should have a good AI Model first. To have a good AI Model, normally you should have a great investment in R&D and have a Proof of Concept (PoC) for AI model first. From this PoC, we can prove that:

• The AI model output performance is accepted by the market.
• The AI model is possible from technical point of view.

From this PoC, you can be able to start building the pitch deck and fundraising process. Following the business execution and operation, normally the AI Model will be continuously improved and evolved. We all know that ChatGPT (OpenAI) was successfully launched on June 11th, 2020 (GPT-3) and has quickly been adopted by 100 million users. But very few people know that OpenAI:

• 12.2015: First start their business
• 06.2018: Launched GPT-1, after more than 2.5 years of Research and a lot of PoCs
• 02.2019: Launched GPT-2, takes 08 months from the previous version
• 06.2020: Launched GPT-3, which takes 16 more months than the previous version
• 11.2022: Launched GPT-3.5
• 03.2023: Launched GPT-4
• 05.2024: Launched GPT-4o (Omni)

Until the success of GPT-3, it took OpenAI almost 5 years of improvement and evolvement to get success. After GPT-3, OpenAI continues to upgrade ChatGPT to a new level of NLP/LLM technology. There is a promising growth speed for AI SaaS but it always needs to take time to improve the AI Model, this is the common principle of AI SaaS Business Model.

Highlight on market

Referring to the high-level statistics of this business model, we can see a big CAGR (considering as market growth rate) of 37.66%, the same as the AI Consultant & AI Development Agency Business Model, but the value estimated $1,548B in 2030, the biggest market value among 06 AI Business Models.

Another interesting statistic is the market region. Asia Pacific is growing as fast as North America market, along the duration from 2022 to 2030, doubling the Europe market in 2023 and taking 38% of the global AI SaaS market.

Example of some AI SaaS structured in each category of the applied user cases, and domains.

Action Recommendation

AI is again a very large topic, so AI SaaS working in this field always faces a very competitive market. So finding your unique idea in this market is not easy, there are always hundreds of AI SaaS already in the market and serving clients similar to your idea.

• Condition to start: the idea is always important for SaaS, especially for AI SaaS. But as the competition in this market is super high, we recommend finding your niche market, and customers first and trying to be the top AI SaaS in that niche market. By doing this, we can quickly come to the customer, test and evolve our AI Model, and generate revenue.
• Condition to scale: explore the K-factor (a crucial metric used to measure the virality of a product) or a way to scale your market. There may be a lot of different approaches to scale.
• Condition to success: AI SaaS is the same as SaaS business, we should continue to follow and keep track of the SaaS Key Metric to optimize the business model.
• Skill needs: a lot of technical and resource management skills are needed to master AI technologies together with Business Administration.

Ready to start your own AI SaaS Business? From Investidea, we would love to talk more with other AI SaaS to open an AI Alliance. We also open support you in AI Development to fasten your roadmap to success. Together, we can fulfill the diversification of technologies, domains, and user cases, which can help us to grow together, and serve our clients better.