Risk, Focus, and the SaaSpocalypse
Helping businesses in complex, regulated fields sleep at night is the key to survival for SaaS vendors and MSPs alike. Plus: How AI coding tools speeded Rev.io into the MSP platform market.
For a technology that’s been carefully tutored (by a professional philosopher, no less) “to have good values” and “be genuinely helpful to the people it works with,” Anthropic’s Claude sure has been scaring people lately.
Especially people who run SaaS companies, or invest in them, and find themselves facing a possible future in which no one with a Claude account needs their products anymore, not to mention a very real present marked by plummeting valuations.
Some of those people are probably right to be afraid. As I wrote here mere days before the start of a “SaaSpocalypse” that had erased some $1.6 trillion of market cap as of last week, Claude Code and tools like it have made building software a genuinely practical alternative to buying it.
Which doesn’t, contrary to what the stock ticker suggests, mean that every SaaS company on earth is suddenly doomed. Just some of them. It would be useful to know which ones.
I’m not sure anyone has that figured out just yet, and I know I don’t, but my current thinking about the matter keeps coming back to the words “risk” and “focus.”
We’ll return to the focus part of that thesis. The risk part borrows heavily from venture investor Nihar Bobba’s concept of “embracing liability.” You’re probably safe in SaaS for the moment, I suspect, if you make something that protects users from any of at least three forms of risk:
Compliance risk. To quote Bobba, “tax calculation software is a commodity. The tax compliance platform that files accurately and faces audits on your behalf is worth a premium.” Same goes for any other app that reduces your exposure to regulatory fines.
Security risk. I mean, sure, I could vibe code an EDR solution, but should I trust it to keep me safe? Similarly, while I know the debut of Claude Code Security last week sparked a run on cyber stocks, color me skeptical that LLMs will displace security software any time soon given that LLMs “hallucinate by design” and the consequences of a hallucination can be existential.
Legal risk. Skittish hospital executives are suffering AI “execution paralysis,” according to recent data from Guidehouse. Could visions of brutal malpractice suits when an AI-powered diagnostic app misfires have something to do with it?
That would certainly help explain why makers of SaaS software for lawyers seem to be holding up pretty well lately. Harvey, for example, was reportedly in talks to raise $200 million at an $11 billion valuation days after Claude Cowork for Legal triggered the first of that panicky stock dumping and days before fellow legal SaaS vendor Legora was reportedly approaching a $6 billion valuation. Word of both deals, moreover, arrived some three months after another big name in legal SaaS, Clio, reached a $5 billion valuation following a $500 million Series G funding round.
Could be the people responsible for those investments all have a delusional view of the future. Or it could be they understand that there’s enduring value in software that helps end users in complex, often regulated fields sleep at night.
“There’s an understanding that what Clio is providing is a secure environment that does not produce hallucinations,” says Lisa Del Real (pictured), the company’s vice president of channel partnerships, mostly because its answers are based on a deep well of legal data.
That well got deeper still recently too. Clio announced its $5 billion valuation alongside its $1 billion acquisition of vLex, an AI vendor that provides workflow automation and intelligent search functionality to law firms based in part on a library of more than a billion legal documents.
Which brings us to what N-able president and CEO John Pagliuca has referred to in a slightly different context as the “f” word—focus.
Anthropic, Google, and OpenAI have all ingested every document in Clio’s library by now, one assumes. I question if they’ll ever be as good at using them, though. The world needs intelligent software that’s good at many things. It also, however, needs intelligent software that’s extremely good at specific things, especially when those things involve the law, healthcare, or structural engineering. No matter how good their models get, I’d argue, horizontal AI companies will have a hard time replicating the focused subject matter expertise offered by vertical AI companies like Clio, Harvey, and Legora.
Venture capital firms seem to agree. They invested some $22.9 billion in 1,151 vertical application startups during Q4 of last year alone, according to PitchBook, versus $16.3 billion in horizontal platforms.
It pays to be a vertical MSP too
What goes for software makers, it’s worth noting, goes as well for managed service providers. Focus (per BetterTracker and Channel Program CEO Kevin Lancaster) is the key to continued relevance and competitive margins for smaller MSPs in particular at a time when (much) larger peers are riding the AI flywheel.
Many of them know it too, according to Del Real. “I do see more MSPs thinking about verticalizing their business,” she says. “Focus has become very important to them.”
And to their clients. Despite their chat-based, natural language interfaces, vertical AI solutions aren’t all that intuitive, which is why Harvey’s currently hiring the kind of “forward deployed engineers” made famous by Palantir (and Palantir-esque MSP Shield Technology Partners), as is Legora.
Only the biggest law firms, however, are likely to get the kind of hands-on implementation, configuration, and training assistance FDEs provide. Everyone else is going to need an MSP. Entech, a Clio partner with five offices across Florida, sees opportunity in that fact.
“We can show a greater ROI on AI products in professional services verticals, because time’s money and it always has been,” says Michael Goldstein (pictured), the company’s market president for Southeast Florida. “So that’s been our philosophy of what we’re going to do and how we’re going to focus.”
Risk is part of the picture as well. “For us, and I’ve said this for years, all roads lead to cyber insecurity,” Goldstein says. Accordingly, he adds, vertical AI engagements always begin with a thorough governance and security assessment.
“We can solve a lot of problems or we can create a lot of problems without the right foundation,” Goldstein notes.
Del Real’s job is finding more partners like Entech. “In my conversations with MSPs, they’re confirming that law firms are coming to them to be that subject matter expert and be a consultant when it comes to AI,” she says, adding that MSPs are coming to Clio for similar reasons.
“They’re looking for the solution that they can recommend with confidence to these law firms,” Del Real says.
Rev.io doesn’t fear Claude Code. It loves it.
When it comes to AI coding agents, one person’s nemesis can be another one’s savior.
Just ask Rev.io. The same AI coding tools striking fear into the hearts of many SaaS vendors enabled Rev.io to build a multi-function managed services platform pretty much from scratch in about two years.
“That’s not easy to do when you have a fixed budget,” observes Evan Rice (pictured), Rev.io’s president and COO. “We were forced to really embrace these technologies and push the capabilities of what they’re able to do.”
Which have grown exponentially, he continues. “Two years ago, the vast majority of code was written by our engineers with some assistance from these AI tools,” Rice says. Now agents do 90% of that work.
“It’s overseen by our engineers, but they’re not actually writing code themselves anymore,” Rice says.
Rev.io needed that kind of speed and efficiency to keep its private equity owner, Primus Capital, happy about growth and profits while executing a strategic pivot away from its roots as a maker of billing software for telco service providers.
“We had just seen over the years that it was more and more managed service providers that were using our platform,” Rice explains, even as the communication service providers it had served in the past were adding managed IT offerings. Both sets of users wanted Rev.io’s billing software to integrate with leading PSA systems, even though neither group was terribly enthusiastic about those systems.
“We got feedback from our clients that they didn’t love those platforms,” Rice says.
So Rev.io decided to build one of its own. To jumpstart that process, the company bought Tigerpaw, a PSA vendor with nearly 40 years of experience serving both telco and IT partners, back in 2023. Then, with a lot of help from AI, it began rewriting Tigerpaw’s aging code base more or less completely. The upshot of that work, introduced last September, is an integrated line-of-business suite combining billing, PSA, RMM, and digital payments functionality.
“We have all four legs of the stool for a communications provider that has managed services or an IT MSP that’s offering VoIP, data, mobile, or connectivity,” Rice says.
They also have a voice mode AI assistant named Rev.ii that users can ask for help with opening tickets, tracking time, completing quotes, and more. The next step, in development now, is to add long-run agents capable of automating entire workflows start to finish autonomously.
“When we built our original platform, we wanted to have the best tools for our clients’ employees to leverage. Now we want our platform to be an employee,” Rice says. “That’s really a shift that we’re seeing in software in general, and that’s going to be our big differentiator.”
Unlike flesh-and-blood employees, moreover, Rev.io’s agentic laborers will get paid only when they close a ticket or sale. “Today we sell seats like a lot of other software companies,” Rice says. “I fully expect that by the end of this year the vast majority of our pricing will be outcome-based.”
Users won’t have to wait that long for the first of Rev.io’s agents to appear, however. “It’s months out,” Rice says. “We’ll have major releases in April and June and then every two months after that, with small incremental releases that happen every week along the way.”
Or maybe not so incremental and even more often, if AI coding tools keep improving at the rate they have been, he adds. “It’s been pretty fun to watch.”
Into AI and managed services?
Then you’ll probably be into MSP Chat, the podcast I co-host, too. Recent guests include the CEO of that AI system of record startup I wrote about recently, two top executives from AI system of action vendor Thread, and the CEO of ConnectWise, the managed services heavyweight that recently bought AI startup zofiQ. Tune in weekly for even more.
Also worth noting
This deserves support: MSP Well is a new non-profit dedicated to mental wellness for a community subject to enormous, continuous stress.
GTIA has announced the winners of this year’s ChannelCon Innovate Awards.
In yet another step toward security, Veeam has unveiled Agent Commander, a new solution designed to help businesses manage and mitigate agentic AI risks at scale.
Todyl has launched Janus, an agentic AI-powered solution designed to accelerate and enhance incident investigation.
CrowdStrike and VAST Data are partnering to integrate data-layer governance and platform-level controls with threat detection and response software.
Forescout and Netskope are partnering to integrate real-time device intelligence with Netskope’s intelligent AI and cloud security.
Arctic Wolf has acquired exposure assessment platform provider Sevco Security.
ISC2 has launched a new global Code of Professional Conduct for cybersecurity professionals worldwide.
Illumio has introduced a platform designed to combine agentless visibility with breach containment for hybrid IT environments.
Keeper Security has introduced quantum-resistant encryption capabilities to protect end users from a dangerous class of threats that could come sooner than you think.
You’ll now find software from Blumira on the Pax8 Marketplace.
Make of this what you will: According to Exabeam, 95% of organizations will spend more on security this year and 44% call AI the top reason why. Yet 44% also call AI the first investment they’d cut if budgets tightened and the hardest spend to justify.
Pure Storage isn’t Pure Storage anymore. It’s Everpure, and the soon-to-be owner of data intelligence and orchestration vendor 1touch.
Dell’s new PowerEdge XR9700 server is designed to bring cloud RAN and AI workloads to harsh edge environments.
“Single-app, single-stack, single-pass” SASE vendor Zenarmor has a new partner program.
Speaking of SASE, Versa Networks has launched a sovereign SASE-as-a-service offering to provide secure, compliant networking tailored to national requirements.
DevSecOps orchestration vendor GitLab now has an MSP partner program.
Tim Koubek is the new Americas president at TeamViewer.
Frank Wiacek is the new CRO at Nile, which you last read about here three months ago.