(Yicai) Aug. 18 -- Fundamental demand for Software-as-a-Service has not seen the steep decline the market had warned about in the first six months of the year, mainly because SaaS companies have embraced artificial intelligence to undergo changes.

"AI transformation is a matter of life and death for us," the head of a leading Chinese SaaS provider told Yicai recently. "But it feels like the era belonging to our industry has returned."

As AI agents started demonstrating capabilities to directly invoke software, read data, and perform tasks at the beginning of the year, the capital market has voiced concerns that the traditional SaaS business model would be disrupted. But core software companies, including Germany's SAP and the US's ServiceNow, reported earnings growth in the second quarter, with AI having a real contribution to contracts and revenue.

For example, SAP's cloud revenue expanded 22 percent in the second quarter from a year earlier, with its cloud backlog increasing 27 percent. ServiceNow's subscription revenue climbed 25 percent in the period, and its AI business's annual contract value surpassed USD1 billion for the first time.

Chinese cloud computing and software giant Kingdee International Software Group reported CNY296 million (USD43.9 million) in AI-native business revenue in the first half, up 189 percent from the same period last year. Among that, subscription revenue surged 283 percent to CNY146 million. Meanwhile, the contract value for its AI-native products reached CNY605 million, up 159 percent.

SaaS companies' business model is transforming, as users no longer frequently open a specific software application. This will likely change the way businesses purchase software from buying licenses and features to acquiring the capability to automate tasks.

"The old logic was to create a closed space for users to enter," an industry insider told Yicai. "But the new logic is to position yourself along the agent execution path, allowing it to invoke your services as it passes through."

The current performance figures are not enough to prove that the software industry has fully transformed. But businesses are indeed beginning to reconsider what software can do beyond providing functions, such as how it can help accomplish tasks for the enterprise.

"What we should focus on is to disrupt traditional, obsolete thinking and establish an AI-native mindset," Kingdee's founder Xu Shaochun said during the company's latest earnings conference call. He believes the AI transformation is no longer just about adding a feature to existing software, but it requires a complete rethinking of the software itself.

The biggest opportunity in the software industry is to reshape corporate software infrastructure, middleware, and business processes around agentic AI, Charlie Dai, vice president and chief analyst at market research firm Forrester, told Yicai. This includes components, such as agent runtime, orchestration, memory, governance, security, and observability platforms, which will form new technology stacks and engineering platform practices, he added.

Editor: Futura Costaglione