Tesla Limits Engineer AI Spending, Microsoft to Cut 4,800 Jobs, Is Claude Enabling a SaaSpocalypse?

0:13Welcome, everyone, to the Informations TI TV. My name is Rocket Drew. Today is Monday, July 6th. Before we start the show, I have a quick news update for you. Broadcom and Apple have agreed to extend their long-standing tech collaboration through 2031. The companies announced that they have struck new multi-year agreements for Broadcom to develop and supply custom chips for Apple to use in its products. On today's show, we have an inside look at how small firms are replacing Salesforce products with their own custom AI apps made using Claude Code. Plus, the information published exclusive reporting that Tesla is cracking down on employee AI spend.

0:56We'll talk to the reporter who broke that story. And in another exclusive report, the Information's Microsoft reporter got his hands on a memo detailing how the company plans to overhaul its AI app. He'll talk about that story plus the layoffs that Microsoft announced today in its Xbox and sales units. It's going to be a great show, so let's get right into it. As AI has gotten better at coding, it has spooked a lot of software investors into thinking that a lot of legacy software companies could become obsolete in a so-called SaaSpocalypse. My colleague, Laura Bratton, who authors our Applied AI newsletter, published a story today showing that smaller customers are the tip of the spear.

1:38They're already using AI to replace Salesforce. Welcome on the show, Laura. Hey, Rocket. Good to be here. Definitely. I'm really excited to continue our conversations about the SaaSpocalypse. I think the last time we talked about this, I was taking the position that, I don't know, will there even be software companies in five years? And you were talking to me off the ledge saying, well, software companies still have a place. So I'm curious to see if this story has changed your bigger picture thinking about what's happening with the SaaSpocalypse, but we'll get to that. We talk about some of the biggest tech companies in the world on this show, But how did you get the idea to focus on small businesses for this story?

2:17I've been hearing a lot of chatter on social media, X and LinkedIn, from founders and executives of smaller companies that have said they've done this. And then I also have just met a lot of founders in person at different events around San Francisco and when I was working from New York who said they'd been doing this. And so I knew that it was a trend happening. I just needed some concrete examples to really drive the story home. And so that's what led to this reporting. Got it. So what did you find with respect to how these smaller businesses are changing their software use in the AI era? Yeah, I heard from founders and executives that they are using software from new AI startups like Replit and Lovable, as well as Anthropics Cloud Code and Cursor to create their own internal apps that replace their customer relationship management software from Salesforce, HubSpot, and other smaller apps.

3:16and that those apps usually cost them around 40k annually and so those are the cost savings they're typically seeing but for small companies that are between 20 and 70 people that's a big that's a big saving. Tell us more about the savings I guess AI bills can be very expensive that's something we're hearing a lot now but you wrote that the true cost of ownership for more traditional SaaS can be a lot higher than the sticker price so what kind of savings are people seeing? Yeah. So I guess one example I can give is the Seattle Seawolves. It's a pro rugby team in Seattle, of course. And they have about 70 full-time staffers and they used four engineers over the course of four months to create their own app that replaced their ticketing sales system and Salesforce's CRM.

4:05And for a small company with 70 people, I mean, what the founder said is that they didn't really need all the bells and whistles of a CRM and AXS because what they were having to do is merge data from these two separate apps into spreadsheets and then use data from their spreadsheets to inform how they changed their fans' experiences by placing them at different points in the arena and how they could upsell them certain fan experiences is the way they described it to me. And now that they have their own app, they can see sort of data about those fans and which tickets they're buying in real time and have all the functionalities of a CRM and this, you know, new app that they created.

4:49So I think that in this example in particular, they're seeing revenue go up and they're also seeing their software budget, their software costs decrease by about 50%. And so I thought that that was a really good example. He didn't give me an exact annual software budget. And then from other customers that I heard, they were saving around$40K annually in payments to Salesforce by creating their own solutions that cost in the hundreds of dollars per year to maintain. Yeah, it's super interesting that building your own can be not just cheaper, but also better because you can build whatever features, the exact features that you're looking for in an app.

5:28So that's a really interesting example. Was there another example of a company that you want to walk us through, one that was especially interesting to you from this story? Yeah, I want to call out because it wasn't just Salesforce. So there's a startup, Arcade.dev, and they're really interesting because they helped Anthropic create – they collaborated with Anthropic to create part of the MCP protocol that we all know. And they recently had a big raise in the tens of millions. And so they're really part of the AI conversation. And they told me that they replaced HubSpot, not necessarily because of the cost, but because they were just tired of the user interface.

6:09And they wanted to have something super customized where they use AI agents to pull data rather than having to log into a site. And I think obviously the argument can be made that all of these software giants, they want you to use AI agents to interact with data now. They've created AI layers on top of data. We saw Salesforce launch Headless 360 and declare that they were like, the user interface is dead. We're going to give you a way to interact with our data without having to log in. But I think that the arcade example shows how software giants are having to reckon with how they change their user interface.

6:51It's not only about cost. And, you know, it'll be interesting to see whether that applies to all the other companies outside of Silicon Valley, like if they want to use AI agents to interact with their data or if they still want to use their interface. I think that an argument can be made that some companies do want to use their interface. They're less technical. So really interesting how this broad range of examples kind of shows what smaller companies are thinking about. Yeah, I think sort of customized UIs are a really underappreciated aspect of the SaaSpocalypse. Like I imagine a day not too long from now where every app on my phone has a customized UI just based on the look and feel that I prefer.

7:34So it's interesting that the UI is already a factor for the companies that you're talking to. It's interesting also that it was HubSpot and not Salesforce. I feel like it's always Salesforce that we're talking about in these conversations. Like, why is there something special about Salesforce? Is it like a leading indicator for other SaaS companies? Or why do we end up talking about it so much? I think because it's a customer relationship management software, primarily. I mean, it's known for its CRM. It obviously has a lot of different apps, but that's what people think of when they think of Salesforce.

8:04And that's what a lot of small companies, you know, bought from Salesforce. So I think that because Salesforce is the leading example in this particular category, that's why we hear about it so much. And it's just a massive software giant. And, you know, its CEO, Mark Benioff, pioneered SaaS in general in the early 2000s, the idea of software as a service. So I think that that's why it's always an example that we hear about. I think actually what I heard from consultants is that ripping out software like Salesforce, like Salesforce's CRM, isn't necessarily the first choice. What companies really want to do is build AI on top of the software as like a system of record.

8:54So I think that my reporting for this story doesn't necessarily prove that the SaaS populace is happening. I think it shows that there is interest in small companies ripping out software systems that arguably they didn't need in the first place and that they spent a lot of money on. But, you know, consultants I spoke to said that while there can be a lot of cost savings, it's really a better alternative if you have custom AI agents that you can use on top of your software. because the cost of ending those relationships and ending those contracts is actually pretty high. And if you have historical data in them, it makes sense to use them as kind of a system of record.

9:38Yeah, that makes sense. The thing I'm trying to get at is if Salesforce is in trouble, how much does that suggest that all other software companies are in trouble? It sounds like on the one hand, Salesforce might be first on the chopping block because you're paying for all these features you don't want. It's kind of expensive. On the other hand, it sounds like it's kind of disruptive to rip out Salesforce and replace it. So if people are willing to go to those lengths, maybe other software companies are in trouble too. Yeah, I don't think we can say that they're in trouble yet just because if anything, when I was exploring these conversations with small companies and chatting with consultants that work with both small and large companies, they said that large companies are largely not replacing their biggest software providers.

10:22But I think that this is an early signal that larger companies may begin to explore these kinds of options. And we're already hearing from bigger companies for other stories I've reported that they're moving some workflows out of their systems of record, whether it's Salesforce, SAP, ServiceNow, they're moving workloads out of those big software providers and using AI agents to automate some tasks that they used to pay large software providers to do. So I think we're seeing pricing power from software providers is under pressure and smaller companies are exploring alternatives. Whether that will lead to the SaaS apocalypse or not, I think is to be seen.

11:04And you can also make the argument that you know, it is a missed opportunity to have your software installed at these smaller companies that could later arguably become the open AIX and anthropics of the world. So is there a missed opportunity for future revenue growth? Yeah, that's totally fair. But for now, it's not too devastating for Salesforce to be losing some of these smaller contracts. But does the experience of these smaller companies, does it tell us anything about what's going to happen next with the larger customers that, say, Salesforce cares more about? Yeah, I think that it does show, you know, I spoke to Replit, which is, you know, a startup that helps companies build custom applications.

11:47And they said that, you know, they're seeing, in particular, small companies that have software replacements, the large majority of smaller software companies are just ripping out their older software and replacing them with new custom solutions. And they think that this will eventually lead to larger companies doing the same thing. That's obviously a point of contention among different consultancies and companies that help Fortune 500 firms and other small companies with their software spend. So yeah, I think it remains to be seen whether this is a broader trend or not, but I think that my reporting is an early signal that it's possible to be done at a small scale.

12:31And I think it could be replicated at a larger scale. For example, I spoke to a French biopharmaceutical company, Sanofi, and they said that they're aiming to take 80 % of their workloads out of ServiceNow and other software apps and move them into kind of a more customized workflow that consists of AI agents. They built this custom in-house platform for employees, to use called Concierge, and they built it with Cursor and Cloud Code. And those AI agents then talk to AI agents from a startup called Elementum and their data in Snowflake and AI agents that they're provided by SAP, which I know is just this tangled web of AI agents.

13:12But they're using that to take a lot of workflows they used to have in larger software systems and move them into a more custom process. And that's a massive threat. I mean, it represents at least tens of millions of dollars annually, 10 million euros annually. Yeah, absolutely. Well, it's fascinating to hear what you're seeing on the front lines of this development. So next time, we'll have to talk about what is in that 80 % and what are they choosing to remove from Salesforce and what gets to stay for now. So thanks again for coming on the show, Laura. Tesla is now capping employees' AI usage.

13:49Even as the company is banking part of its strategy on technology that leverages AI. My colleague, Grace Kay, who covers the Elon Musk business empire, scooped inside details of that story. I want to bring her on now to share what she knows. Welcome on the show, Grace. Hi. Yeah, so we saw that earlier last month, Tesla's IT department notified employees that they were introducing a$200 weekly cap on AI spending. which is the first cap they've introduced at the company so far. Yeah, I think that's pretty remarkable to see right now. Definitely a sign of the times. What's the rationale behind this new policy?

14:31It's definitely targeted towards cutting spending. I've talked to some people who saw that a lot of people on the engineering side, software engineers in particular, were spending upwards of like several thousand dollars a week on AI tokens. So definitely cutting back. It's also a larger trend in the industry. My colleague here, Jody Mann, has been reporting on this very extensively with Meta. There's been this kind of trend of all the companies are pushing people to use more AI. And then, you know, they've realized that with token maxing and people kind of gamifying the system that it's very expensive, you know, these AI tokens.

15:08And, you know, perhaps we need to be a little bit more wise about how we use them. So, you know, at Tesla, this looks like an AI cap. Got it. So$200 per week now, what was the cap before? Was there one? There wasn't a cap from my understanding. It was kind of a free for all. There's this leaderboard where people could see like token usage. You could even see who the top token users were in your department. And in that way, I think they were kind of encouraging people to use more tokens. That leaderboard is still accessible to employees. And I think it's kind of having the reverse effect now of like maybe a board of shame Or, you know, maybe there's this idea that like, okay, here is how much I'm costing the company.

15:47And, you know, what ways can I cut back? If I was an engineer, I'd be so confused. It's like whiplash. It's like one day you want me to use it more. One day you want me to use it less. Like, I'd be so confused. Do you think engineers will be satisfied with just$200 of tokens per week if they were, sounds like spending a lot more before? Yeah, I think it really depends. I mean, obviously for those people who are spending thousands of dollars a week, this is a substantial cutback. But Tesla has also allowed employees, you know, some exemptions. So, you know, they can get more than that$200 a week, but it has to be approved by higher ups.

16:22So this way, I think it gives Tesla a little bit more control versus kind of having a free for all where, you know, people could spend as much as they wanted. And, you know, there didn't seem to be as many consequences. Now, you know, you really have to think about what you're spending and like how you're using AI. Do you think it will be hard to get that exemption or do you think they just want to add a little bit of friction in the process? So there's one more hoop you have to jump through. Yeah, it's hard to say. I don't think it'll be that difficult because obviously Tesla has been pushing them to use more AI.

16:51But yeah, it definitely gives them more control over employees. Got it. I imagine one way that employees are burning a lot of these tokens is paying for like cloud code and these kinds of coding agents. I also wonder where Grok fits into this. Like, does it get any special treatment under this policy? Yeah, yeah, that was one interesting thing. So a unique thing about working at Tesla is because you're so connected to Elon Musk's other companies, people at Tesla get to beta test early versions of Grok products. Earlier this year, they were testing Grok Build, which is like this larger developer platform.

17:25They're still testing different Grok products. And actually working directly with XAI's product lead, Andrew Millich, who is talking to people at Tesla, getting feedback, even troubleshooting issues. so with grok beta versions of products those are free so they're not included in that um 200 limit got it but only the beta version so once the product is released then even people at tesla would have to pay for it presumably yes yes that's my understanding do you think people oh i would say it's interesting too because like even though beta versions are free and you know there might be you know a push to use more grok products at tesla Tesla engineers from who the ones I've talked to at least are not big Grok fans.

18:07And it seems like, you know, Cloud Code and Codex are kind of the more popular products. Got it. Okay. So it sounds like they're maybe not getting all of the beta testing that they're hoping for from Tesla employees. Yeah. It seems like, you know, even though maybe there is an incentive because there's not that limit on the beta products that, you know, Tesla engineers just aren't a fan necessarily. For context here, has Tesla's AI usage favored products from Elon's companies in the past? Not from my understanding. So, you know, they've collaborated a lot. Tesla has Grok in their cars, you know, and they are working together on Macrohard, which is this larger white collar AI agent project.

18:49So they've worked together a lot, but like, I haven't seen any engineers like saying that they are being forced to use Grok products or anything like that. It's totally voluntary. Got it. I mean, I think this policy change is pretty remarkable because I think of Elon as such a poster child for AI. He's like one of the AI guys. I expected that he would be saying AI is making people so productive that we're happy to throw money at it because they're getting so much value out of it. How do I how do I square this with the policy change? He's saying it passed$200 a week. It's not worth it for most people.

19:22Yeah, that's an interesting thing, too, because we saw that Elon Musk has actually been emailing, sending company-wide emails about AI agents. He sent them a link about how to use AI agents. He sent them a link kind of encouraging them to use Composer, which is Cursor's coding model. And as we know, Cursor and XAI, Cursor's joining SpaceX. So he's definitely been like encouraging AI use. But I think, you know, Tesla is always very cost conscious is my understanding. And, you know, I think this limit is just one way for them to have a little bit more control. Got it. Well, it's a fascinating development.

19:58So thanks for coming on, Grace, and walking us through it. Microsoft is laying off 4 ,800 employees, primarily in its Xbox and sales units. Let's bring in our Microsoft reporter, Aaron Holmes, to talk about what this move indicates about the company's strategies. Welcome back, Aaron. Hi, happy to be here. All right, so we knew these layoffs were coming. Does anything surprise you about where most of the cuts were made? So, yeah, like you said, these cuts have been, you know, previewed for a while. And we knew that they were going to hit Xbox heavily, which they did. The other big area that we've seen is sales.

20:36And, you know, in the announcement that went out to staff today, Microsoft was, you know, a little bit careful about how it framed this. It said that, you know, it's reorienting its business around AI, which is true. But it also, you know, was careful to say that the roles that are being cut are not actually being directly replaced by AI. It's more about just sort of reorganizing the business to make AI sales a bigger part of what Microsoft does. And I think that that, you know, framing is interesting for many reasons and maybe a little different than what people were expecting. Yeah, fair enough.

21:11Where have the real issues at Microsoft been? Its stock has been among the worst performers in the mega cap tech stock so far this year. Yeah, and I think that's for a few reasons. You know, one is that investors are nervous that Microsoft could face these potentially existential threats from OpenAI and Anthropic, which are trying to essentially, you know, automate the type of work that goes on in Microsoft's flagship office software. And at the same time, Microsoft has continued to invest heavily in new CapEx for AI data centers. And its efforts to sort of sell its own co-pilot product have been a little bit stop and go.

21:51They've started to show some momentum for co-pilot sales earlier this year for the first time. But at the same time, I don't think that those numbers have quite been strong enough to assuage the concerns on Wall Street that Microsoft isn't getting a sizable enough return from the huge amounts that it's invested into AI so far. Yeah, there's a lot of hopes riding on Copilot right now, I feel like. It was interesting with these job cuts that Microsoft said the roles are not being replaced by AI. I was surprised they said that. I mean, frankly, I feel like it's in fashion to always blame AI for these job cuts.

22:27So what did you make of that? You know, it's a good point. I think that we are kind of seeing two things in the broader tech world. One, to your point, you know, companies do want to show that they're using AI to get returns and to get cost savings, especially in the form of potentially headcount reductions. But at the same time, we're now seeing this sort of cautiousness from the biggest sellers of AI. So Microsoft, but also OpenAI and Anthropic and Google, who don't really want AI to be seen as this villain that is going to lead to widespread unemployment or replace jobs. I, you know, reading between the lines, I think that Microsoft has a lot of sort of PR and policy reasons to say that AI is not replacing people.

23:10And we've seen the company be pretty sappy about, you know, its efforts to say that it's going to, for example, invest in communities where it's building AI data centers and that it's going to do AI job skilling. And so across the board, you know, Microsoft doesn't want to go around spreading this idea that AI is going to lead to people losing their jobs, either at Microsoft or more broadly. And so I think some of the messaging today aligns with that. Yeah, yeah, that totally makes sense. So in terms of Xbox, is Microsoft gearing up to spin off the Xbox division? And if so, who would buy it? Yeah, so I reported about a month ago that Microsoft had not ruled out spinning out Xbox.

23:51My current understanding is that there's not any immediate plans to put Xbox up for sale. And I think right now, Asha Sharma, the CEO of Xbox is focused on just trying to make the business healthy in its current form. You know, she said today that some of these job cuts are about trying to get the business to a healthier place. And what Xbox has done is it sold four of its studios that it owned. It announced today, you know, two of them were sold back to management, I understand for a very low price. And also while giving those studios cash, so that they can stand alone on their own. And then two other studios have been sold to additional buyers.

24:30There's a fifth studio that is also exploring a sale. So right now it doesn't look like Xbox itself is being spun out from Microsoft anytime soon. I think the plan is to essentially see how much it can shore up its business in the next six months to a year. But I've also been told, you know, eventually restructuring or spinning out Xbox is not off the table for Microsoft. Okay. Well, I want to switch gears to make sure we have time to get to another story that you wrote last week. You viewed a memo outlining how Microsoft is merging its consumer and enterprise Copilot apps. Tell me about this memo.

25:05What did it say? Yeah, so basically this is, you know, a transformation that Microsoft is making to Copilot in an effort to basically, in the words of this executive who wrote this memo, to prove that Copilot has a right to exist to customers. And so, you know, this executive, Jacob Andro, who just started to oversee Copilot's user experience in the past six months, is essentially trying to overhaul the app entirely. And so, you know, part of that involves combining its different consumer enterprise coding agent features all into one app, which I'm told is, you know, aiming to ship by August, so next month.

25:45And at the same time, Andrew has been trying to cut a lot of features from Copilot that people didn't like or that they found annoying. I also hear he's been working very closely with some of Microsoft's biggest customers just to really understand, you know, what they like and don't like about Copilot. And sort of the broader effort there is an all out push to get Copilot to sell more quickly and to essentially prove that it can compete directly with ChatGPT and Claude and some of the other AI chatbots that have been more so dominating in the enterprise space. Yeah, that right to exist framing, I think is really interesting and kind of telling about the tough position that Copilot is in.

26:25Like the burden of proof is on Microsoft to show why Copilot should even exist right now. And they need to sort of earn customers' trust about that. Is anything actually changing about what Copilot is with this announcement? Like what is the change that's happening here? Yeah, so the biggest change that will show up for customers, I'm told, next month is that, you know, previously there was this 365 Copilot that lived in office. There was GitHub Copilot, which was like the AI coding tools. And then there's just kind of the generic Copilot chatbot. Essentially, all of those things are being combined into a single app that, you know, you will basically have the same point of entry for all of them.