Dive Brief:
- Nearly 80% of U.S. organizations reported increases in software costs over the past year, according to a Forrester report published in July.
- New software features, including AI capabilities, are to blame for the rising costs, according to two-thirds of surveyed technology leaders.
- More than 4 in 5 tech leaders anticipate their organization’s adoption of generative AI features within SaaS products will increase software costs next year, according to the survey.
Dive Insight:
Keeping IT costs in check while innovating is a consistent priority for tech executives, even as focuses shift. But executives say it’s gotten more difficult to strike a balance.
Enterprises can expect a hefty price tag on generative AI deployments. Gartner estimates organizations can spend between $5 million to $20 million embedding, customizing or building generative AI applications.
Despite upfront costs, C-suite leaders hope the addition of generative AI can deliver savings. More than half expect the technology to save them money this year, according to a Boston Consulting Group survey published in January.
But generative AI’s return on investment has gained a reputation for being elusive.
“Forrester’s view is that as software increasingly offers AI, prices may increase disproportionately to the value received and won’t show a positive ROI everywhere,” the report said. “AI value in software will need to be carefully monitored and weighed as it evolves.”
Contract complexities and predicting future needs have also created hurdles for organizations trying to manage software expenses. Nearly half of organizations grapple with future-proofing plans, Forrester data shows. Even organizations that have a clear path forward struggle to modify existing contracts and navigate vendor lock-in.
“While long-term contracts may provide cost advantages, they can also restrict flexibility and adaptability to evolving needs,” Forrester said in the report. Nearly 40% of respondents credited vendors’ lack of transparency as a contributor to the challenge.
Generative AI’s introduction to tech stacks has underlined the need for guardrails on tech spend. Yum Brands, which includes KFC, Taco Bell and Pizza Hut, told stakeholders the company has strong governance of tech spend in place as it deepened its AI pursuits last quarter, according to CFO Chris Turner.
Tech executives are fighting cost creep by increasing audits, leveraging their purchasing power and turning to open-source alternatives when appropriate, Forrester found.
