2024 Enterprise Software Budgets: Gen AI To Get Axed?

2024 Enterprise Software Budgets: Gen AI To Get Axed?

Management teams are working through 2024 operating budgets and hopefully have figured out that interest rates will remain elevated for 2024.

Companies carrying meaningful debt have no choice but to assume elevated interest will remain for the foreseeable future (we believe a 5 handle makes sense for the 10-year).

In terms of the People budget, I believe management teams will execute headcount reductions both in Q4 2023 and especially in January 2024. These cuts will touch all functional areas including Sales, Marketing, Customer Support, Corporate Finance, Human Resources, Legal, etc.

From a Technology budget perspective, companies will adjust their budgets based upon headcount (the number of employees using various software applications and services) and may eliminate technologies that did not deliver an ROI in 2023.

One discretionary area that is likely to experience a pullback in “experimental” budget dollars is Gen AI. As we have previously written, when companies pursue AI initiatives, the limiting factors are people and data:

  • Do I have qualified people on staff (data scientists, data engineers, business users) that may ensure the success of an AI project – Gen AI or otherwise?
  • Do I own data (both structured and unstructured) that may be leveraged by a Gen AI process such that it will produce an ROI for the organization? What is the data’s state of readiness? What will it cost to prepare the data for the AI project? (again, this is true of Gen AI or any “AI” project).

If companies have not answered these AI-related questions by now, they will not pursue Gen AI experiments in 2024. If companies have run Gen AI experiments but have not produced a positive ROI, those experiments will cease. Companies will however continue to run AI processes that deliver value which are part of day-to-day operations. For example, Netflix obviously is not going to rip out the machine learning algorithms that power its movie recommendation engine.