Are new generative AI features in software a monetizable enhancement or table stakes?
A recent Deloitte US analysis assesses gen AI’s potential impact on software providers’ revenue
Almost every enterprise software company likely will embed generative AI in at least some of its existing products, potentially in ways that will go unnoticed by users. But it remains to be seen whether these enhancements can be monetized and, if so, how much revenue they could generate.
The Deloitte Center for Technology, Media & Telecommunications recently conducted an analysis of how many software tools likely will be enhanced with gen AI, the potential addressable market and the potential pricing models implemented for or affected by gen AI enhancements, and projected that almost all of the 50 largest enterprise software companies globally could garner no more than a collective US$10 billion increase in annual revenue by the end of 2024, which would be lower than more optimistic projections.
Software companies are looking to monetize their generative AI enhancements to existing products largely because the companies often are spending billions of dollars on integrating gen AI and the operating costs aren’t trivial, with estimates that each gen AI query costs between 1 cent and 36 cents. (One service that costs US$10 per user per month is rumored to be losing US$20 per user monthly, with some users costing the provider more than US$80.)1
Yet at least some buyers of enterprise software are pushing back. According to a June 2023 US survey of buyers fielded by UBS Global Research and Evidence Lab, respondents believe there’s significant long-term potential for gen AI features, but some respondents consider AI features to be table stakes. Their attitude is that every vendor needs to offer them, but “good luck trying to get me to pay for it.” 2
Software providers also might be challenged to convince customers to pay for gen AI features until these customers see the value those features bring to their workflows—at least in the short term. Research abounds on generative AI’s early impacts on knowledge workers’ productivity from using gen AI tools themselves (not gen AI features embedded in enterprise software) to do more, faster, and at a higher quality than those not using the tools.3 Proof of ROI is still “just around the corner,” possibly enabling software providers to list gen AI among their top value-adding features and benefits. But as of the halfway point in 2024, the potential for monetization remains in question.
Research and analysis by the Deloitte Center for Technology, Media & Telecommunications
Read the full report at www.deloitte.com/insights/tmt-predictions.