McCabe foresaw an existential crisis: If chatbots could answer customer queries, and if they replaced customer service agents, companies “wouldn’t need help desks — they wouldn’t need the software anymore.”

He decided Intercom needed to become an artificial intelligence company, or risk becoming obsolete.

More than three years later, similar realisations about the potential for AI to disrupt software are suddenly rippling through public markets and wreaking havoc on the industry.

And that existential crisis has spawned an identity crisis: Software companies at every stage — from startups to publicly traded corporations — have been working hard to be seen as AI companies. Sparkles emoji and magic wand icons are everywhere, “.ai” has become a popular website domain, and venture capital investors say almost all of the pitches they’re fielding from software startups have some kind of AI angle.

The reason for the panic is clear: Over the past 12 months, software stocks have seen their biggest plunge in more than 30 years, wiping out USD 2 trillion of market capitalisation from the peak, according to JP Morgan. The S&P North American Expanded Technology Software Index has dropped about 20 percent in just the past month. And shares of software giants Salesforce and ServiceNow are down more than 40 percent over the past year.

A lot of that damage has come just in the past several weeks, as the release of powerful new AI tools, like Anthropic’s Claude Opus 4.6, have put into sharp relief how quickly the technology

They’ll change their domain name, say from word.com to word. ai, and they will change their entire messaging on their landing page and their LinkedIn to, like, ‘We are an AI-enabled tool now,’ right? – Omari Rigg, entrepreneur, is advancing.

Much the way that software has long disrupted whole industries, AI’s arrival is redefining what it means to be an innovative tech company.

Pressure Building in the Startup World, catching up game

As recently as 2024, PitchBook called the business model known as “software as a service,” or “SaaS” — charging subscription fees for cloud software use — “the bread and butter of venture.”

Now, what energy was left in the fading category has been sucked up by AI, a technology that could change both how software is built and how companies pay for it.

Although a slice of startups were pitching themselves as AI companies a few years ago, today “it’s like almost all of them are,” said Tony Wang, managing partner of 500 Global, which runs startup accelerators and venture funds.

Almost half of venture capital last year went to AI startups, according to CB Insights. And at least 135 of the 151 companies in the latest cohort of startups in the tech accelerator Y Combinator identify as AI companies, according to its directory, including 14 with names that end in “AI”

McCabe successfully made the pivot: Within three months after the release of ChatGPT, Intercom, which remains privately held, released an AI customer service agent. The company’s growth rate soared, and annual recurring revenue ratcheted up to nearly USD100 million, McCabe said.

But many companies are still scrambling to make the transition.

Omari Rigg, an entrepreneur who mentors startups through the tech accelerator Techstars, said he often saw shallow attempts at AI transformation.

“They’ll change their domain name, for example, from word.com to word.ai, and they will change their entire messaging on their landing page and their LinkedIn to, like, ‘We are an AI-enabled tool now,’ right?” Rigg said. “But other than that, nothing they’re really doing is actually leveraging a ton of actual AI.”

Does that strategy work? Largely no, venture capital investors say.

“It’s very quick to see,” said Byron Deeter, a partner at Bessemer Venture Partners who has focused on cloud software companies.

Many analysts and investors believe public market investors have jumped the gun on writing the obituary for software companies. “The market is pricing in worst-case AI disruption scenarios that are unlikely to materialise over the next three to six months,” JP Morgan strategists wrote in a note this month. Even with generative coding, said Wang “It’s building the UI, it’s building the back end, it’s deploying in the cloud, all that I consider software.”

But what makes a software company is in flux. Code production is becoming more accessible, and what differentiates teams is how they use artificial intelligence.

When companies are thinking about how to stand out, Wang added, “I would say just throw out the software and just deal with the AI.”