“The factory of the future will have only two employees, a man and a dog. The man will be there to feed the dog. The dog will be there to keep the man from touching the equipment.”1
The SaaS Boom
Over the last 20 years, one particular group of mostly Silicon Valley startups created over 300 “unicorns” and have been the recipients of nearly half of all venture capital dollars. These firms sell Software-as-a-Service (SaaS), a method of software delivery and licensing in which software is accessed online via a subscription, rather than bought and installed on individual computers.
The catalyst was XMLHttpRequest, a built-in object web browsers added in 2005 that enabled developers to execute AJAX, or “asynchronous JavaScript and XML”, on webpages. AJAX was not a new technology nor a new language. Instead, it was existing technologies used in a new way. For the first time, developers could make things in websites that looked like a desktop application. This meant software was no longer something you installed from a CD-ROM, but something you could use on a website and on your phone.
Emerging AI Agency
The recent advancements in Large Language Models (LLM) shows signs of a similar paradigm shift. Neural networks and GPUs have been around for a long time but putting these existing technologies together in a new way to train a very large model to quickly and repeatedly predict (generate) text from inputted text patterns (prompts) is new.
The ability for these LLMs to convincingly “understand” natural language has allowed for the development of agentic artificial intelligence (AI), an emerging pattern of using LLMs to independently perform tasks, solve problems and learn from experience. As the costs to train and use LLMs continues to decrease, agentic AI may be another opportunity for SaaS to transform both itself and how its customers operate.
Theory of the Firm
Ronald Harry Coase's Theory of the Firm fundamentally explains why businesses exist: to reduce transaction costs when the expense of internal coordination is lower than the cost of market transactions.2 As agentic AI systems become more sophisticated, they're poised to dramatically reshape this economic calculus, particularly in how SaaS companies interact with their customers' internal operations.
Traditional business-to-business (B2B) SaaS solutions primarily focus on optimizing existing business processes, requiring significant human labor to implement, operate and derive value from the software. This creates a clear delineation between software costs and labor costs in customer organizations. However, as agentic AI systems evolve, they begin to blur this line by directly replacing the human cognitive labor rather than merely augmenting it.
This shift has profound implications for the transformation and growth of SaaS. When AI agents can autonomously perform some tasks that previously required human labor, the total addressable market for SaaS solutions expands dramatically. Instead of selling software that supports human workers, B2B SaaS companies can offer complete solutions that internalize both the software and labor components of business processes.
The Firm Transformed
Here's where it gets interesting. Coase argued that firms grow until internal coordination costs exceed market prices. AI agents shatter this equation. They coordinate faster, cheaper and perhaps more reliably than human hierarchies ever could. Transaction costs plummet. The total addressable market isn't just information technology spend – it's now also the labor cost of business functions.
This transforms the fundamental nature of the firm. Traditional organizational boundaries blur. The distinction between software and labor dissolves. Who is running the marketing campaign, the VP of Marketing or their resource allocation reasoning model? B2B SaaS companies aren't just selling products – they're selling intelligent business capabilities.
This shift suggests a radical restructuring of corporate organization. AI-driven SaaS becomes the new framework for defining firm boundaries. Coase's theory isn't just evolving – it's being reinvented for the age of artificial agency. And SaaS companies are well positioned to profit from this transformation.
Important Disclosures & Definitions
1 Eigen, L. D. & Siegel, J. P. (1989). The Manager's Book of Quotations. Amacom Books.
2 Coase, R. H. (November 1937). The Nature of the Firm. Economica, 4(16), 386-405. 10.1111/j.1468-0335.1937
AAI000885 02/04/2026