Generative AI is reshaping the enterprise software landscape, placing over 122 publicly listed mid‑market SaaS firms under intense pressure. A June 2025 AlixPartners study warns that more than 100 companies are caught in a 'big squeeze,' with nimble AI‑native startups replicating applications cheaply and quickly on one side, and tech giants like Microsoft, Salesforce, and Oracle deploying AI at scale on the other. As a result, revenue growth is slowing, with only 39% of these firms qualifying as 'high‑growth' in 2024, down from 57% in 2023. Moreover, these numbers are projected to fall further to around 27% in 2025.

This paradigm shift is more than just feature upgrades: generative AI agents are evolving into self‑servicing platforms that can operate fluidly across traditional databases and workflows. The traditional SaaS model is becoming obsolete. In contrast, early AI‑native companies and forward movers like Klarna, who have dropped Salesforce and Workday in favour of in‑house AI tools, are signalling the effectiveness of the transition. AlixPartners finds that companies which shift from selling software to delivering AI‑powered services often see a 4-6x uplift in valuation multiples.

To ‘survive and thrive,’ mid‑market SaaS businesses in Europe and the UK must reposition quickly. Key strategies include embedding AI agents at the core product layer, streamlining infrastructure for scalable AI inference, and upskilling teams in AI governance and prompt engineering. Firms should also explore M&A or partnerships to accelerate technological catch‑up. Product, operations and talent must all recalibrate toward an AI‑first model. Those that fail to evolve risk being squeezed out of relevance entirely.