Startups love to boast about 'ARR.' AI could bring this to an abrupt end.

"Startups and other tech companies love to boast about " annual recurring revenue." AI could make this metric obsolete, though. According to a new report by consultant AlixPartners, investors are on the cusp of abandoning the traditional ARR-multiple playbook that defined the SaaS era. In its place will emerge hybrid valuation models that reward companies not for the size of their subscription base but for how effectively they use AI to elevate customer outcomes."

"AlixPartners now argues that ARR is becoming increasingly "meaningless" in an AI-first economy, especially as usage- and outcome-based business models replace the per-seat licenses that have dominated the SaaS industry. The big change is related to how expensive AI models are to run. Every time a new AI software service taps into this intelligence, the provider has to pay a per-token price. That makes fixed, per-seat SaaS subscriptions tougher to offer."

Traditional annual recurring revenue is becoming a less reliable valuation metric as AI drives a shift to usage- and outcome-based business models. Per-token costs of running AI models make fixed, per-seat subscriptions harder to sustain and make future revenue more consumption-dependent and volatile. Investors are moving toward hybrid valuation models that emphasize AI leverage ratios, operational efficiency, automation, and measurable customer productivity gains. Valuation will reward companies that convert AI investments into revenue and margin improvements rather than scale alone. Outcome-based pricing and consumption metrics are likely to determine durable enterprise value in an AI-first economy.

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