According to a new report by consulting firm AlixPartners, more than 100 mid-sized software companies are feeling the pressure of AI, as generative AI is challenging the traditional SaaS model and changing the world of enterprise software. These companies are stuck between AI-startups, which can build similar tools more quickly and cheaply, and tech giants like Salesforce and Microsoft, investing a lot in AI. The report warns that many of the mid-sized software companies are going to struggle for their survival in the next two years.
Most of the AI used for enterprise software includes tools like Zendesk’s Answer Bot and CoPilot, but AlixPartners reports that it's just a start, and generative AI for software is going to evolve more in the coming years. AI models are also becoming the apps themselves in addition to helping within the apps and are being used for a number of reasons, like analyzing reports, scheduling meetings, and writing code. There aren't even any complex interfaces needed to handle these AI systems because they are able to work with different types of data without any heavy preparation.
AlixPartners looked at 122 public enterprise software companies with less than $10 billion in yearly revenue and found that their growth is slowing down. In 2023, 53% of the companies analyzed were said to be growing fast, but this dropped to 39% of companies in 2024 and is expected to fall to 27% this year. Customer loyalty is also weakening, with net-dollar retention rate declining to 108% in Q3 2023 from 120% in 2021. Many big tech companies are also trying to squeeze AI into their existing products, which is replacing these software enterprises with AI.
Traditional SaaS models also rely heavily on structured data workflows, user interface, and seat-based pricing, but AI agents do not need all of that, and that's why they are challenging the foundations of SaaS models. Companies like ServiceNow and Salesforce are now charging result-based pricing instead of charging per user. There is also pressure on profit margins because AI agents are costly to run, and many companies are focusing more on profits instead of growth through streamlining product lines, prioritizing AI as a growth area, cutting costs, and shifting their infrastructure strategies.
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Most of the AI used for enterprise software includes tools like Zendesk’s Answer Bot and CoPilot, but AlixPartners reports that it's just a start, and generative AI for software is going to evolve more in the coming years. AI models are also becoming the apps themselves in addition to helping within the apps and are being used for a number of reasons, like analyzing reports, scheduling meetings, and writing code. There aren't even any complex interfaces needed to handle these AI systems because they are able to work with different types of data without any heavy preparation.
AlixPartners looked at 122 public enterprise software companies with less than $10 billion in yearly revenue and found that their growth is slowing down. In 2023, 53% of the companies analyzed were said to be growing fast, but this dropped to 39% of companies in 2024 and is expected to fall to 27% this year. Customer loyalty is also weakening, with net-dollar retention rate declining to 108% in Q3 2023 from 120% in 2021. Many big tech companies are also trying to squeeze AI into their existing products, which is replacing these software enterprises with AI.
Traditional SaaS models also rely heavily on structured data workflows, user interface, and seat-based pricing, but AI agents do not need all of that, and that's why they are challenging the foundations of SaaS models. Companies like ServiceNow and Salesforce are now charging result-based pricing instead of charging per user. There is also pressure on profit margins because AI agents are costly to run, and many companies are focusing more on profits instead of growth through streamlining product lines, prioritizing AI as a growth area, cutting costs, and shifting their infrastructure strategies.
Read next: Creator Economy Evolves: 59% Now Identify as Entrepreneurs, Surpassing Social Media Reliance
