Jan 18, 2025
There’s a few pieces on AI Rollups floating around and I think it’s worth getting familiar with the model as it looks like a trend.
The tl;dr is that if you build a vertical SaaS product you can grab more return not by making pure software sales, but instead by buying businesses and then leading the transformation of applying the software to that business; this is known as the growth buyout. The oft-cited example of the model is Metropolis, who worked out number plate recognition for paid entry/exit to car parks, sold the software, then once they’d proven the opex gains started buying car parks and doing the change management themselves.
This has sparked the launch of a wave of imitators. I’d be slightly wary as it’s getting bundled into AI - see this analysis piece as a typical example.
There’s an assumption buried deep here that feels untested to me “software costs approach zero”. From using a lot of AI development tools I think that’s unlikely to be true in vertical SaaS, mostly as the domain is so complex and you have to have a very precise understanding of the requirements that’s difficult and can’t be scraped from textbooks. You’re also typically innovating on what’s there already, and a lot of the complexity of the software is hidden from the customer in the backend (it’s not easy to clone). So in short, not all software costs are equal and we should think carefully about where AI will win.
AI Rollups