Revenge of the SaaS

Good morning,

Harry Potter fans forced the relocation of a $570M undersea power cable to avoid disturbing the fictional grave of the fictional house-elf Dobby. Instead, the cable now passes near Bronze Age human burial remains.

In today’s edition:

• The SaaSpocalypse plot twist
• The “C-shaped” economy
• Business aren’t really using Fable 5

To compete with the labs, traditional SaaS is quietly turning AI into a paid add-on

The next-most cited term after “[insert word] maxxing”...

“SaaSpocalypse” has been thrown around a lot this year, and not just because it’s fun to say: investors are worried that advanced AI agents will replace many traditional enterprise SaaS uses, and software stocks have been on the struggle bus.

In April, we said the SaaSpocalypse is not now. Ramp data shows that while AI model spend is surging, spend on category-specific vendors is also rising and software stalwarts continue to capture the lion's share of total spend in their categories. That’s still true, but new Ramp Rate data reveals an interesting plot twist:

Traditional SaaS vendors are increasingly charging for AI features. Many initially bundled these tools into existing subscriptions at no extra charge while they were still in beta. Now that the testing phase has ended, AI is becoming a paid add-on for companies like Salesforce, Figma, Canva, and GitHub.

• Fourteen percent of traditional SaaS vendors billed for an AI-powered feature in the past year, up from 8% a year earlier.

These features, like chat and agent subscriptions, can be billed as seat-based, tier-based, or consumption-based (think: metered API usage). Seat-based billing still dominates, even for embedded AI products.

• 9% of traditional SaaS vendors who bill for AI features use a seat-only model, versus 3% that bill for usage-only and 2% with dual-billing models.
• Here’s the kicker: While usage-billed products remain a minority, they now account for 36% of embedded AI spend, up from 24% a year earlier.

That’s because the cost difference is significant: the median business billed based on usage spends 10.6x more annually on embedded AI SKUs than one paying only for seat-based products, Ramp data shows.

The bottom line:

The bigger concern is the Seatpocalypse… As CFOs managing token budgets already know, the cost difference between seat and consumption-based billing can be huge. In the case of embedded AI features, businesses billed by usage spend nearly 11x more than those paying for seats alone. Seat pricing still rules SaaS, but as AI gets entrenched into more software workflows, metered billing could reprice the entire industry.

Term sheet: “C-shaped” economy

During this week’s retail earnings from consumer bellwethers like Walmart and Target, we’ll likely hear a lot more about the alphabetic shape of the U.S. economy.

“K-shaped” has been the go-to this year, where the rising arm of the K reflects higher income households thriving and the declining arm reflects lower income households struggling.

But there’s a new term gaining traction: the “C-shaped” economy. It’s a rebuttal to the K-shaped narrative. Instead of an ever-widening divide, in a C-shaped economy recovery happens in lower-to-middle income segments, too.

Hilton CEO Christopher Nassetta mentioned the term in his company’s earnings call in May. For Hilton, the C-shaped shift showed up as stronger demand across lower- and mid-tier hotel brands (rather than just in luxury segments).

Treasury Secretary Scott Bessent said this month that “the K-shaped economy is over, and we’re seeing more of a C economy.”

While the data has been mixed, this week’s retail earnings will shed more light on the health of the consumer economy — and which letter it might most align with.

Anthropic’s powerful model isn’t being adopted much

This summer, Anthropic released the most powerful AI model to ever hit the market. Fable 5 is apparently so potent that its release was briefly suspended by the U.S. government.

One month in, we dug into Ramp data to see how much businesses are adopting Fable. The finding: not so much.

Over the last month, Fable 5 has made up only 6% of tokens businesses purchased from Anthropic. Despite being the company’s most expensive model by far, Fable accounted for just 11.4% of dollars spent on Anthropic models.

Have we found a new upper bound for how much businesses are willing to spend on AI?

Read more from Ramp’s economist Ara Kharazian.

Signals Shortlist

• Billions in tariff refunds are supercharging corporate earnings (The Wall Street Journal)
• US bond selloff drives 30-year yields to highest since 2007 (Bloomberg)
• Credit card issuer to Walmart partners with OpenAI for ChatGPT shopping (CNBC)
• Nvidia inks $105B deal for OpenAI data center (Yahoo Finance)
• Prescription drug prices record sharpest drop in over 60 years (The Washington Post)
• Will Anthropic’s invisible watermarks curb ‘AI slop’? (Nature)

🗓️ Leading Events:

Tuesday, August 18: Housing starts. Earnings expected from Home Depot, Toll Brothers, Klarna, and Baidu

Wednesday, August 19: Fed July meeting minutes. Earnings expected from Target, TJX, Lowe’s, Estée Lauder, Coty, Bill Holdings, and Analog Devices

Thursday, August 20: Earnings expected from Walmart, Ross, John Deere, and Alibaba

Friday, August 21: Earnings expected from BJ’s Wholesale