Midmarket software program corporations should shortly pivot away from conventional SaaS fashions or danger dropping floor to AI-powered startups, based on a brand new examine from consulting agency AlixPartners that was launched on Monday. The report discovered that each development and buyer retention have slowed considerably prior to now few years, largely because of the speedy development of AI.
The report says that greater than 100 mid market software program corporations are caught in a “stress cooker” of AI mannequin improvement, however declined to call particular companies. “We consider many mid-size enterprise software program corporations will face threats to their survival over the following 24 months,” AlixPartners stated.
Caught in the midst of the AI arms race
Midsize software program companies are being encroached upon from either side, in what the report described as a “huge squeeze.”
On one facet, fast-moving AI startups are utilizing synthetic intelligence to develop new functions much more quickly than conventional software program corporations.
On the opposite, tech giants reminiscent of OpenAI and Microsoft are investing billions in proprietary AI instruments — a stage of spending that smaller corporations merely can’t match. AI instruments additionally are typically costlier to develop than legacy software program, additional chopping into the revenue margins of smaller SaaS companies.
Bigger enterprise software program suppliers can even bundle AI apps and instruments along with different options at a decrease total prices, because of economies of scale created by large person bases. In distinction, smaller software program companies proceed to depend on conventional per-seat pricing fashions, which are typically extra expensive for purchasers.
Advised adjustments to maintain up with the AI increase
To achieve these conclusions, the examine investigated 122 publicly listed software program corporations with annual income under $10 billion. The examine discovered that gross sales development had slowed prior to now couple years: solely 39% of this group met the bar for high-growth corporations in 2024, down from 57% in 2023. Analysts anticipate this quantity to say no additional, right down to 27%, in 2025.
The median web greenback retention charge additionally dropped, which indicators that buyer retention is declining. These corporations had a median NDR charge of 120% again in 2021, however this declined to 108% within the third quarter of 2024.
Of the businesses surveyed, half anticipate to make important adjustments to their enterprise fashions within the subsequent yr so as to sustain with the speedy adjustments brought on by the continuing AI increase. Options beneficial by the report embrace constructing AI brokers as core merchandise, switching to outcome-based pricing fashions, and contemplating mergers or acquisitions.
