So Jamin Ball of Altimeter has a great summary of the cumulative revenue growth of all public SaaS companies … and it’s not the story we wanted to hear at the moment:
Bottom Line Up Front: The aggregate cloud software market just delivered its worst quarterly performance in years, with net new ARR additions plummeting nearly 30% year-over-year in Q1 2025. Is it a blip?
The Numbers Don’t Lie: A Market Overall in Retreat … Other Than AI
The latest data from Jamin Ball’s Clouded Judgement analysis paints a sobering picture of the SaaS landscape. Aggregate quarterly net new ARR added across the cloud software universe dropped to just $1.65 billion in Q1 2025, down from $2.33 billion in Q1 2024. That’s a 29% year-over-year decline.
But here’s what makes this particularly concerning: this isn’t just about one bad quarter. The trend has been building for over a year, with growth rates oscillating wildly between spikes and drops. The market experienced a brief resurgence in Q2 2024 with 50% YoY growth, only to crash back down to negative territory by Q1 2025.
The Volatility Era: Welcome to the New Normal
What’s perhaps most striking about the current environment is the extreme volatility in growth patterns. Looking at the YoY growth chart, we see dramatic swings:
- Q2 2024: +50% growth (the peak)
- Q3 2024: -29% decline
- Q4 2024: +15% recovery
- Q1 2025: -29% crash
This isn’t the truly steady, predictable growth SaaS companies have historically enjoyed. Instead, we’re seeing a market characterized by good and bad quarters for SaaS as a whole that make planning and forecasting difficult.
What’s Driving the Decline?
Several macro factors are converging to create this perfect storm:
- Enterprise Budget Scrutiny: CFOs are demanding higher ROI thresholds for software investments and continuing to push for vendor consolidation. The days of “nice to have” SaaS tools getting approved are over. Every dollar spent on software now requires bulletproof justification or allocation to an AI budget.
- Market Saturation: Many categories that drove explosive growth in previous years are reaching maturity. The low-hanging fruit of digital transformation has been picked, and companies are being more selective about additional software investments.
- Economic Uncertainty: Despite some positive economic indicators, many businesses are still operating in preservation mode rather than growth mode. This means maintaining existing software stack rather than expanding it.
- AI Disruption Anxiety: Companies are hesitating to invest in traditional B2B solutions while waiting to see how AI will reshape their operations. Why buy a traditional CRM when AI-native alternatives might emerge? And incremental budget is mostly going to AI.
And at a more practical and “micro” level:
- NRR Down, Upsells Harder. SaaS leaders are growing, but with NRRs lower, it’s just that much harder to hit growth plans. Even market leaders like HubSpot have seen NRR fall from 110% to 100%. Okta’s NRR is down to 106%, from 111% a year ago and 115% 2 years ago.
- All Incremental Budget Going to AI. It’s a reality.
- Slower New Customer Growth. Many B2B and SaaS leaders continue to rely on price increases and upsells for more and more of their growth. This just has its limits. Especially if NRR is falling, not adding enough new customers eventually leads naturally to slowing growth.
The Implications for B2B Leaders
This data should fundamentally change how SaaS and B2B companies approach today’s landscape:
- Sales Cycles Are Getting Longer: If aggregate ARR additions are down 30%, upsells at least are taking longer to close. Revenue teams need to adjust forecasting models and pipeline management accordingly.
- Customer Success Is Make-or-Break: With new customer acquisition becoming more challenging, retention and expansion within existing accounts becomes critical. The companies that thrive will be those that can grow their existing customer relationships.
- AI Budgets Are Where the Growth Is: Are You Really Tapping Into Them?
- Product-Market Fit Requirements Have Escalated: Customers are no longer willing to adopt “good enough” solutions in new vendors. The bar for product quality, integration capabilities, and demonstrable ROI has never been higher.
- Pricing Strategy Must Evolve: Volume-based growth is no longer viable for many companies. SaaS leaders need to focus on value-based pricing and finding ways to increase average contract values rather than just customer counts.
The Path Forward: Adaptation Strategies
Despite the challenging environment, opportunities exist for companies willing to adapt:
- Focus on Mission-Critical Use Cases: Position your product as essential rather than optional. Companies will still invest in software that directly impacts revenue or reduces critical operational risks.
- Embrace Consolidation Trends: Many companies are looking to reduce their software vendor count. B2B companies that can expand their platform capabilities or integrate with fewer tools will have advantages.
- Invest in AI First and AI Integration: Rather than competing with AI, smart SaaS companies are incorporating AI capabilities into their existing platforms to defend against disruption.
- Double Down on Customer Experience: In a market where every renewal is at risk, exceptional customer experience becomes a competitive moat.
Looking Ahead: Is This the New Baseline?
The critical question facing the industry is whether Q1 2025’s performance represents a temporary setback or a new baseline for the B2B market. Historical patterns suggest we might see another spike in the coming quarters, but the overall trend points toward a more mature, slower-growth market.
The aggregate numbers tell us that the SaaS gold rush is behind us. We knew that. Outside of AI fueled spend, belts are still tightening.
But for companies that can adapt to this new reality, there are still significant opportunities ahead. The key is recognizing that the playbook has changed—and changing with it.
Who’s winning the most today? Palantir. Our deep dive here:
The data presented reflects aggregate performance across the cloud software universe as tracked by Clouded Judgement. Individual company performance may vary significantly from these aggregate trends.
