There is no denying AI’s influence on software spending and IT budgets as it continues to transform sectors. Businesses must navigate a world where software costs are rising, AI spending is increasing, and IT budgets are under more scrutiny than ever before in order to produce quantifiable return on investment. For software purchasers and sellers, this convergence of forces offers both opportunities and challenges. Businesses can keep a competitive edge by proactively addressing these changes, while others face the risk of incurring unmanageable expenses.
West Monroe polled 310 U.S. executives in finance, IT, and procurement from the banking, healthcare, manufacturing, high-tech, and utility sectors in order to better understand these dynamics.
The Increasing Trend In Software And IT Spending
Spending on IT is increasing across all industries. Eighty-six percent of firms raised their IT spending in the last year, and eighty-five percent anticipate more increases in the year to come. As a result of the continuous digital transformation and the quick uptake of AI, 63% of businesses on average devote 7% or more of their income to IT.
But not all IT expenditures are increasing at the same rate. Due to factors including feature complexity, AI integration, and vendor consolidation, software spending in particular is growing more quickly than other IT categories. Software spending climbed by 11.9% in 2024 and is expected to expand by an additional 10.5% in 2025, making it the second-fastest growing category after data center systems, according to Gartner’s Worldwide IT Spending Forecast.
An rise in spending is anticipated given the crucial role software plays in facilitating digital transformation, process automation, and AI adoption. However, the yearly increases in SaaS and software subscription rates are a significant contributor to these increased expenses. Strategic software spend management is essential for businesses to make sure they are getting the most out of their investments, optimizing value, and obtaining return on investment. To keep a competitive edge, proactive renewal negotiations and cost escalation management are crucial. However, in order to earn renewals and maintain long-term partnerships, software vendors need to be ready to show the return on investment (ROI) that their solutions provide, innovate to access AI budgets, and interact with customers early and regularly.
The Effect Of AI On Finances
These days, AI is a significant line item in IT spending. A notable change in priorities is seen in the fact that over 25% of businesses devote 10% or more of their IT budgets to AI projects. However, the impact of AI goes beyond simple tool purchases. It affects data management, corporate software, and infrastructure, which has an impact on IT investment as a whole.
Indeed, as AI use grows, 91% of firms anticipate that their technology costs will increase. Although AI is changing the way work is done, many people are not seeing the instant efficiency gains they had hoped for. Approximately 95% of custom generative AI pilot projects don’t produce quantifiable business value, according to a recent MIT research. This fact is reflected in the fact that only 8% of businesses want to cut employees or contractors as a result of AI, but over half are boosting partnerships and talent expenditures to support AI initiatives. Leaders will increasingly insist that AI investments show quantifiable returns because this dynamic cannot last for very long. Adoption of AI poses two challenges for businesses. in the one hand, businesses need to spend money in AI to be competitive. However, they must make sure AI solutions produce quantifiable business results and refrain from wasting money on unnecessary platforms. Businesses run the risk of overspending on software and AI if they don’t practice disciplined portfolio management, which will hinder their capacity to innovate in a sustainable manner.
Managing Software And AI Expenditures: A Buyer’s And Provider’s Perspective
Software purchasers must manage a number of obstacles, including growing expenses and the need to innovate, all while staying inside tight financial constraints. There is a lot of pressure on executives to defend their spending, show return on investment, and obtain the best terms when negotiating contract renewals because more than 60% of them think they are spending more on IT than their peers.
Buyers need to take a more calculated approach to software purchases in order to overcome these obstacles. Organizations can concentrate on fewer, more impactful categories that are closely linked to business outcomes by creating portfolio management procedures. Contract negotiations can also be improved by using benchmarking data, particularly when using AI-enhanced technologies. Furthermore, demonstrating return on investment (ROI) through operational KPIs is crucial for defending IT expenditures, and preparing for workforce changes including adjustments to the mix of employees and contractors as well as automation guarantees that companies maintain their agility as AI use increases.
The challenge on software companies is to give quantifiable and measurable value while defending increased renewal rates. The proliferation of AI features is not a solution, but buyers now expect AI capabilities as part of the package. Features that are redundant across vendors or have limited long-term use will not be paid for by buyers. Providers must assist clients optimize their whole tech stack by concentrating on results rather than features in order to remain competitive. Gaining the AI mindshare also requires creative pricing and deployment strategies. In a market that is becoming more and more competitive, providers can foster trust and loyalty by sharing the efficiency advantages from AI with their clients through modified prices or increased services.
In Conclusion
The current situation of software and AI spending is characterized by a careful balancing act: providers must give quantifiable value in the face of growing consumer expectations and AI demands, and buyers must match their expenditures with strategic priorities while keeping costs under control. Disciplined portfolio management and an emphasis on results are essential for both groups to successfully navigate this changing environment.
AI is changing how much money is spent on software and IT in the future, but there are drawbacks to its potential. Businesses will position themselves for long-term success if they handle AI strategically by eliminating redundancy, investing in high-impact areas, and proving return on investment. On the other hand, in a market that is becoming more and more competitive, those who do not adjust run the risk of falling behind.
Organizations can fully utilize AI and software to propel growth, efficiency, and differentiation in the years to come by striking a balance between innovation and cost control.
See how top companies are handling the changing software and AI spend landscape by reading the entire study report for more in-depth analysis and practical solutions.