Dive Brief:
- Nearly 3 in 4 tech chiefs are allocating more than 10% of their IT budget to AI, up from about one-quarter last year, a Thursday report from West Monroe found. The tech consultancy surveyed 316 U.S.-based executives involved in buying AI and enterprise software or making pricing and product decisions.
- In response to higher AI costs, most tech leaders said they are chiefly increasing their budgets to meet demand for services. Other key actions include consolidating vendors, reducing spend somewhere else or cutting software seats. But software providers say they see demand accelerating faster than buyers expect their budgets to grow.
- The mismatch between software providers and the executives procuring the technology highlights a need for both sides to narrow their goals and success metrics, Bret Greenstein, chief AI officer at West Monroe, said in a statement. “Buyers are funding practical use and foundational capabilities, while sellers are already looking toward an agent-led future,” he said.
Dive Insight:
AI is becoming a driver of overall IT spending for enterprises, upping the spend on enterprise software, IT infrastructure, internal headcount and contractors. As AI changes the software industry, CIOs face decisions about how much to spend, where to invest their budget and when to build capabilities instead of buying them.
CIOs and software companies are both seeking ROI for AI as the technology quickly changes — along with its pricing structure. Tech chiefs prefer more predictable pricing models like enterprise subscriptions and usage-based pricing, West Monroe found.
But software producers have a different perspective, the report said — providers think hybrid pricing that includes outcome-based pricing is preferred.
“AI is already a budget decision, but buyers and sellers are moving at different speeds,” Dhaval Moogimane, senior partner and software industry lead at West Monroe, said in a statement. “Buyers’ choices about what to buy, where to invest and how they want to pay don’t always match sellers’ expectations.”
The report shows that both parties say employee productivity and AI assistance are near-term priorities. But tech chiefs emphasize infrastructure, model consumption, platforms and talent while sellers put more weight on AI agents.
“Software companies need to understand changing buyer preferences and their adoption of agents outside of software products” Greenstein said.
To take greater control over IT budgets, CIOs can renegotiate contracts, closely track costs across their IT stack and monitor consumption, the report said. These actions require a new layer of management within IT teams, according to West Monroe.
“AI is now eating software — but software isn’t disappearing. It’s being rebuilt around AI,” Greenstein said.
