While investors worry about the potential for software to lose out due to an “explosion” in AI technology, one of Microsoft’s top executives pushed back on concerns about the decline of enterprise software. Rajesh Jha, executive vice president of Microsoft’s Experiences + Devices Group, said AI agents will still require a software license, which would address concerns that AI-driven layoffs will destroy seat-based revenue. Jha argued that if a company deploys thousands of digital agents, the number of “paying users” could actually increase, even if traditional headcount declines.
The logic behind Rajesh Jha’s argument
The key insight is straightforward. In the future, Jha envisions AI agents becoming independent entities with their own logins, inboxes, and digital identities, operating within business software systems. Also, if you want to function as a user, you may need to obtain a license as a user.“All of these embodied agents have an opportunity to offer seats,” Jha said, using the industry term for paid software licenses. He explained it with an example. Today, a company with 20 employees might purchase 20 Microsoft 365 licenses. Now imagine a company deploys 5 AI agents for each employee and reduces its workforce to 10 due to improved productivity. According to Jha’s model, the company would pay for the remaining 10 people and the 40 agents who work with them, totaling 50 seats. In other words, a company that fires half its workforce due to AI may end up spending more on software, not less, because each AI agent filling the gap will need its own place in the system.
Why this matters to the software industry
The debate comes amidst anxiety across the enterprise software sector, with investors questioning whether the rise of AI poses an existential threat to seat-based pricing – the very model in which software companies charge per user, per month, or per year. The concern is that if AI significantly increases the productivity of each employee, companies will need fewer employees and therefore fewer licenses. Revenues will shrink. The business model that has made enterprise software one of the most profitable sectors in technology is starting to show cracks.Jha’s argument is that this fear is based on a misreading of how AI will actually be deployed. The assumption that AI will reduce the number of software users is only true if we define users as humans.
