Services are the next software: Why the AI revolution will look different than you think

One of the greatest promises of the AI era is the transformation of services into software. This isn’t just about chatbots or tools that streamline existing workflows, but it’s a much deeper idea: turning professional service models in traditionally human-delivered domains into digital, automated, and scalable products. Think Service-as-Software.

But anyone expecting this shift to mirror the success of SaaS is mistaken. SaaS - Software as a Service - revolutionized how companies purchase and use software: instead of expensive integration projects or on-premise deployments, we moved to monthly subscriptions, automated onboarding, self-service models, and minimal human interaction. That worked beautifully for tech-driven sectors like DevTools, team management, or office automation. But it falls short in areas like healthcare, recruiting, or legal services, where every deal requires trust, personalization, and ongoing support.

Lotan Grove

Understanding The Opportunity Means Looking at The Numbers

The U.S. market for professional services - BPO (Business Process Outsourcing) - is estimated at over $2 trillion, healthcare services exceed $4 trillion, and sectors like recruiting, accounting, legal, and insurance each generate hundreds of billions annually. These are colossal industries that haven’t yet undergone deep digital transformation. Not because there’s no demand, but because the sales and implementation processes are too complex for a “DIY” model.

In these markets, customers don’t buy a product, they buy a solution to their problems. And the kind of that solution encompasses far more than just code: it requires problem identification, custom solution design, onboarding and implementation, training, maintenance, and continuous updates. Customers don’t want to read documentation or experiment with a user interface. They want someone to solve their problem - full stop.

This is where the true opportunity lies: taking these complex services and turning them into productized experiences. The potential here dwarfs the traditional SaaS market.

The Barrier Isn’t Technology, It’s Operational Complexity

To succeed in this area, companies need more than just code. They must understand real-world workflows, support clients throughout implementation, and tailor solutions to complex business environments. Startups entering these sectors with a generic off-the-shelf product often hit roadblocks: never-ending sales cycles, pilots that don’t convert, and customers that don’t close.

In contrast, companies that embrace this complexity and build a go-to-market approach tailored for services, can unlock real growth engines.

In fact, after over a decade of tech favoring generic solutions, emphasizing self-service and minimal human touch, the pendulum is swinging back. The biggest opportunities now lie in sectors that require deep customization, precise implementation, and hands-on integration within organizations. Ironically, the most “old-school” industries, those yet to fully digitize, are now the richest grounds for building the next generation of giant tech companies.

Beyond cutting operational costs or reducing manpower, this movement offers an opportunity to rebuild core business infrastructure and create new “systems of record,” working as foundational layers for the business processes of the next decade.

Take Palantir, for example. The company didn’t just stop at offering a technology platform; it developed a unique business model that embedded engineers (FDEs - Forward Deployed Engineers) alongside clients as part of the implementation journey. Initially seen as complex and unscalable, this model became one of the key drivers of Palantir’s success.

To Change the World, You Need to Change Operations

This revolution will not be just technological, but also operational. Those who can turn human-delivered services into software, Service-as-Software, while maintaining the human support that enables customers to undergo that transition, will build the next generation of giant companies. It’s not enough to think like a software startup. You need to think like a service company, and build it like tech.

To replace existing BPO services, the solution must combine precise problem definition, clear solution architecture, professional implementation, ongoing support and updates, and all delivered in a financially efficient manner. It’s essential to understand that there won’t be a one-size-fits-all product. No cookie-cutter solutions. But with AI, it’s now possible to develop smart personalization engines that can achieve, and sometimes exceed, the cost-benefit ratios of traditional SaaS.

What About Israel? There’s A Clear Competitive Edge

Israel is uniquely positioned to lead in the Service-as-Software sector. Thanks to an ecosystem that blends technological innovation with operational flexibility - and thanks to startups’ ability to work closely with customers - the country has a distinct advantage.

Israeli startups that understand it’s not enough to just build a technology product, but that smart operational capabilities must be integrated into the solution, will be well-positioned to break into traditional markets and turn even the most complex services into automated, scalable, and profitable.

Lotan Levkowitz is a General Partner at Grove Ventures, an early-stage venture capital firm focused on Enterprise AI, Deep Tech, Health-Tech, and Infrastructure.