*Check out the full Two by Two Playbook here.*
Original article
Navigating the generative AI disruption in software
Key takeaway
- For entrepreneurs: Rapidly adopt and integrate generative AI into your software products to stay competitive, as the pace of disruption is unprecedented.
- For investors: Expect significant shifts in value pools and competitive dynamics within the software industry, with potential for both massive growth and increased vendor switching.
Summary
The article discusses the rapid adoption and disruptive impact of generative AI (gen AI) on the enterprise software sector. It highlights the technology's potential to drive significant growth while also causing major shifts in user segments, value pools, and competitive dynamics. The authors predict that gen AI will lead to increased vendor switching, new use cases, easier software development, and potential value erosion in certain areas. They also explore the varying impacts across different software categories and provide recommendations for software leaders to navigate this disruption.
Insights
- Gen AI adoption in enterprise software is accelerating faster than previous transformations like SaaS
- By 2027, spending on gen AI could reach $175-250 billion, contributing 2-6 percentage points of growth to the sector
- The rate of vendor switching could increase by 5-10 percentage points due to gen AI
- Three main value pools for gen AI: existing software with embedded gen AI, new AI-centric products, and enterprise internal solutions
- Gen AI could improve developer productivity by 35-45%, significantly reducing software development costs
- 15-30% of knowledge work activities within corporate functions could be impacted by gen AI automation
- The technology may erode incumbency advantages and increase the pace of feature replication
- Some enterprises may shift from buying to building their own gen AI solutions
- Different software categories will experience varying levels of disruption and transformation
Implications
- Software companies need to rapidly adapt and integrate gen AI capabilities to remain competitive