Moats aren't enough: AI reshapes B2B software leadership

The Gist

• Median GRR in B2B software remains around 90%, but moats aren't enough
• AI disruption downgrades 40 tech companies, including Adobe and Salesforce
• CrowdStrike and Cloudflare upgraded due to AI-driven cybersecurity demand

• Moats in B2B software, such as high switching costs and data lock-in, keep existing customers but do not drive growth in the Age of AI.
• AI-native companies are growing significantly faster than traditional B2B software companies, with top-quartile AI-native companies achieving 360% new logo velocity year over year.
• AI spending is projected to approach $1.5 trillion in 2026, capturing 30% of the total IT budget increase, while traditional IT spending grows at a fraction of that rate.
• Seat compression due to AI efficiency is leading to revenue decline even if customers do not churn, as fewer seats are needed.
• Companies with AI-specific ARR below 5% are at risk of losing market share to AI-native competitors.
• The gap between Gross Revenue Retention (GRR) and Net Revenue Retention (NRR) indicates the effectiveness of a company's expansion engine.

• Focus on increasing AI-specific ARR to capture more of the growing AI budget.
• Monitor net new customer growth rates quarterly to ensure your product remains competitive against AI-native alternatives.
• Evaluate and potentially transition away from per-seat pricing models to outcome-based pricing to mitigate seat compression risks.
• Analyze the gap between GRR and NRR to assess the effectiveness of your expansion engine and identify areas for improvement.

• 90% (Median Gross Revenue Retention (GRR) across B2B software.)
• 95% (GRR for the best B2B software companies.)
• 108% (Current Net Revenue Retention (NRR) across public software companies, down from ~116% at the peak.)
• 61x ARR (Valuation multiple for private AI companies.)
• 4x ARR (Valuation multiple for public B2B software companies.)
• 360% (New logo velocity year over year for top-quartile AI-native companies.)
• 71% (New logo velocity year over year for non-AI peers.)
• $1.5 trillion (Projected AI spending in 2026.)
• 15.2% (Year-over-year growth rate for AI software spending.)
• 30% (Percentage of total IT budget increase captured by AI.)
• 1-5% (AI-specific revenue or ARR as a percentage of total revenue for incumbent software companies.)
• $2.00 (Median New Customer CAC Ratio, up 14% year-over-year.)
• $2.82 (Bottom-quartile New Customer CAC Ratio.)