Major software corporations capitalize on AI technology to eliminate discounts and strengthen customer commitment
In the rapidly evolving world of enterprise software, a notable trend has emerged: large vendors are increasingly integrating Artificial Intelligence (AI) more deeply into their offerings and adopting flexible, consumption-based pricing models.
A recent study by Forrester revealed that this shift includes the use of usage-based pricing models, charging customers based on model calls, GPU hours, or data processed. Subscription-based models, which include API access, updates, Service Level Agreements (SLAs), and support, are also becoming popular among enterprises requiring frequent updates and scalability.
However, this evolution comes with potential risks and challenges for tech buyers. Forrester warns that pricing complexity and unpredictability could arise from outcome-based models and usage-based billing, leading to unexpected costs due to difficulty in measuring outcomes or fluctuating consumption.
Another concern is vendor lock-in and trust erosion. As incumbent large vendors face challenges competing with AI-native companies offering faster innovation cycles, buyers must carefully assess vendor capabilities and innovation pace. Integration and hidden costs, as well as cybersecurity concerns, are additional challenges that buyers may encounter.
The study found that vendors such as Oracle, SAP, Workday, Microsoft, ServiceNow, and Salesforce are at the forefront of this trend. For instance, Oracle is focusing on tightening the integration between Oracle Cloud Infrastructure (OCI) and Fusion Apps to enable customers to run mission-critical workloads and AI services in a secure, high-performance environment.
SAP, on the other hand, is living to fight another decade under Rimini Street's support, with SAP ECC 6.0 still in use. Salesforce CEO Marc Benioff has assured investors that charging $2 per AI agent conversation would be a "very high margin opportunity" for Salesforce.
The UK MoD has paused a £92M Oracle Fusion contract amid project governance review, highlighting the need for rigorous due diligence when committing to a single vendor's stack. The next major software decision is a bet on a single vendor's security posture, pricing model, and innovation capacity for the next decade.
Forrester's research also suggests that the barrier to implementing AI is less about the AI's intelligence and more about the monumental organizational effort to retrain workforces on new workflows. In 2020, SAP's then CFO Luka Mucic stated that the company was shifting from a supplier of on-prem enterprise applications to a suite of SaaS and cloud services, aiming to increase customer lifetime revenue with the subscription model and expand their share of the wallet.
The study warns that adopting such a strategy dramatically increases vendor lock-in and the strategic risk of the customer's choice. Forrester Research has warned tech buyers that the bundling process is standard among enterprise software vendors of SAP's scale. Microsoft Copilot+ PCs, priced 57 percent higher than the average price of a notebook across Europe, serve as an example of this trend.
In response to these changes, Forrester recommends implementing a rigorous FinOps practice to manage consumption, demand transparent pricing, and build business cases based on tangible outcomes, not vendor promises. This approach can help tech buyers navigate the complexities of AI bundling and flexible pricing strategies in the enterprise software market.
- The trend in the enterprise software industry involves large vendors integrating Artificial Intelligence (AI) into their offerings, often adopting flexible, consumption-based pricing models like usage-based or subscription-based.
- Vendors such as Oracle, SAP, Workday, Microsoft, ServiceNow, and Salesforce are at the forefront of this trend, with Oracle focusing on securing and enhancing the performance of AI services inside their Oracle Cloud Infrastructure (OCI) and Fusion Apps.
- While AI integration may offer benefits, it also raises potential challenges for technology buyers, such as vendor lock-in, trust erosion, and unexpected costs stemming from complex pricing models and difficulties in measuring outcome-based models.
- Forrester Research suggests that buyers can navigate these complexities by adopting a thorough FinOps practice, managing consumption, demanding transparent pricing, and building business cases based on tangible, verified outcomes instead of relying on vendor promises.
- The UK MoD's temporary halt of an Oracle Fusion contract underscores the importance of rigorous due diligence when making significant software and tech decisions, given that the next major software decision often serves as a bet on a single vendor's security posture, pricing model, and innovation capacity for the next decade.
