Melius’ Ben Reitzes: Software is going through a ‘generational transition’

The software industry is undergoing a generational transition from a seat-based SaaS model to a consumption-based "tokenized" AI framework, creating an innovator’s dilemma for established players. Ben Reitzes, head of technology research at Melius, argues that investors should remain cautious as AI disruption fears persist and enterprise customers resist paying premiums for AI features they consider "table stakes." Microsoft faces specific scrutiny regarding its Copilot strategy; the necessity of charging extra for AI while customers undergo layoffs may backfire, potentially forcing the company to eventually bundle the service for free. Furthermore, heavy internal Copilot usage threatens to consume Azure capacity, potentially limiting Microsoft's ability to exceed cloud growth expectations compared to rivals like Google and Amazon. This shift suggests that traditional software companies are currently on the defensive as the industry moves toward software-on-demand.