Will Cloud Providers start acquiring SaaS?

Summary of Will Cloud Providers start acquiring SaaS?

by Massive Studios

28m•October 5, 2025
Listen to Episode

Summary — "Will Cloud Providers start acquiring SaaS?"

Host: Massive Studios (Aaron Delp & Brian Grace Lee)

Overview

A speculative discussion about whether large cloud providers and tech giants (AWS/Amazon, Microsoft, Google, Oracle, Apple, etc.) might shift some capital from AI/infrastructure spending into acquiring SaaS companies. The episode explores strategic trade-offs — buy vs. build, bundling vs. unbundling, valuation and M&A feasibility — and outlines which types of SaaS targets might make sense if hyperscalers pursue a bundling strategy to secure sticky revenue streams.

Key points & main takeaways

  • Big tech has massive cash flows and must choose how to allocate capital: AI infrastructure (GPUs, data centers, models) vs. other investments, including M&A.
  • Current emphasis is heavy on AI investments, but there is strategic rationale for acquiring SaaS to diversify cash flows and provide sticky, profitable revenue.
  • Challenges to cloud-provider M&A:
    • Very high valuations / premium multiples make many top SaaS companies prohibitively expensive.
    • Many SaaS players overlap with existing cloud services (Datadog, MongoDB, Snowflake-like spaces), reducing M&A attractiveness.
    • Integration, salesforce fit and go-to-market alignment matter: acquiring a SaaS that sells to buyers different from cloud customers may be hard to monetize.
  • Potential rationales for acquisitions:
    • Create bundled offerings that lock customers in across infrastructure + SaaS.
    • Act like a bundler or private-equity-style owner of mature, high-margin SaaS (example: Broadcom’s VMware play).
    • Target vertical or domain-specific SaaS where cloud provider can leverage sales reach (e.g., financial services SaaS).
  • Likely realistic targets are mid-market or lower-valued SaaS with sticky recurring revenue (below top-tier astronomical valuations), or collections of complementary companies totaling tens of billions.
  • If AI proves slower/less winner-take-all than expected, hyperscalers may redeploy some investment into acquiring stable SaaS cash flows and enter new segments.
  • Overall conclusion: plausible strategy but not straightforward — high multiples, overlap and strategic trade-offs limit obvious large-scale moves today.

Notable quotes & insights

  • Referenced classic: “There’s only two business models, there’s bundling and unbundling.” — (Jim Barksdale)
  • Insight about AWS/AI posture: “AI is a primitive of what we do.” — describing AWS’s balanced approach to AI versus full-on AI-first strategies.
  • Observational insight: Hyperscalers may act “like private equity” by buying mature SaaS businesses to secure predictable cash flows rather than only funding AI.

Topics discussed

  • Capital allocation of hyperscalers (cash on balance sheets, quarterly cash flow)
  • AI vs. non-AI (traditional cloud) investment trade-offs
  • Valuations and M&A feasibility for SaaS targets
  • Bundling vs. unbundling strategies for cloud providers
  • Potential SaaS acquisition targets (examples by market cap): Palantir, Salesforce, Intuit, ServiceNow, Shopify, Adobe, CrowdStrike, HubSpot, Workday, Atlassian, Datadog, Okta, Twilio, GitLab, JFrog
  • Vertical focus as an acquisition strategy (financial services SaaS)
  • Examples of precedent: Broadcom’s VMware acquisition
  • GTM/salesforce alignment and buyer persona fit as critical integration considerations

Action items & recommendations (for different audiences)

For cloud providers / strategists:

  • Map potential SaaS targets against: market cap, recurring revenue, valuation multiple, customer overlap, and salesforce alignment.
  • Evaluate targeted verticals (e.g., financial services) where bundling can create sustainable cross-sell value.
  • Model trade-offs vs. AI/infrastructure spending: scenario-plan for slower AI adoption or fragmented AI winners.
  • Consider buying multiple mid-sized SaaS companies to build a bundled portfolio rather than competing for top-tier, high-multiple targets.

For investors / watchers:

  • Monitor market softness and valuation drops — opportunistic windows could enable sensible acquisitions.
  • Watch for signals: hyperscalers hiring SaaS GTM talent, M&A chatter, or public companies raising strategic-alignment narratives.

For SaaS founders / execs:

  • Assess strategic fit with hyperscalers (do your customers overlap with cloud buyers?).
  • Strengthen metrics that matter to acquirers: retention, gross margins, profitability/ARR, and vertical depth.
  • Prepare for premium/discount negotiation dynamics given hyperscaler priorities (AI vs. bundled SaaS).

Final thought

Acquiring SaaS is a plausible strategy for hyperscalers but faces real barriers today: steep valuations, product overlap, and sales/market fit challenges. The decision will depend on future AI dynamics, market valuations, and how hyperscalers weigh predictable cash flows versus staying at the AI frontier. The host plans to dig deeper (e.g., analyze the top 75 SaaS companies) to see what a practical acquisition portfolio might look like.

If you want, I can:

  • Produce a prioritized shortlist of plausible SaaS acquisition targets for a given cloud provider (based on overlap, valuation, ARR, and buyer profile).
  • Sketch a sample bundling strategy (5–6 acquisitions + GTM plan) with rough cost estimates.