We're in an undeniable AI boom, and the market is flooded with "innovative" new tools, but I think that most AI saas products are nothing more than AI wrappers and that they are built to fail. This is why:
The ARR is fragile. ARR (Annual Recurring Revenue) is an appealing metric, but it assumes the revenue is actually recurring + annual.
In the world of AI tools for developers, that's a shaky assumption.? Churn is high, revenue is fragile, and the user experience is often frustrating.
Jason M. Lemkin's story illustrates this perfectly. He got excited, started building an app on Replit, and then the agent deleted his production database. A usage spike worth thousands of dollars will probably end in a different direction, but in the meantime, it still counted toward ARR.
They rent intelligence, own distribution, and it's a fragile loop. These startups provide the user experience while OpenAI owns the core models, and this is where the main value is being created.
Unsustainable economics: They are burning cash on freemium users. AI-wrappers often let users run expensive workflows for free. That costs real money per API request, but many startups can't convert freemium usage into paying customers fast enough.
Lack of defensibility: When funding tightens, or when the major AI players integrate these features directly into their platforms, and they will,? these businesses will simply cease to exist.
They're built on borrowed technology, without the strategic depth to withstand real market forces.
When the hype is over and the infra bill shows up, poof, their ARR will evaporate.
So, if you're building in this space, ask yourself: Do I have unique data, custom models, or deep vertical integration that’s not so easy to copy or displace?
If not, chances are that it's merely a feature that will inevitably be absorbed or made redundant by the very platforms you rely on.
