Businesses are facing a significant increase in software expenses as technology vendors integrate artificial intelligence features into their products. A recent study reveals that over 90% of executives expect their technology budgets to grow in the next year, largely driven by rising software costs associated with AI adoption.
The trend affects multiple areas, including infrastructure, data management, and business applications. According to a report from consulting firm West Monroe, which surveyed 310 executives, the financial pressure on companies is mounting as they navigate this technological shift.
Key Takeaways
- Over 90% of business executives anticipate technology budgets will increase due to AI adoption.
- Nearly half of all organizations reported software licensing and subscription cost increases of more than 10%.
- Major technology companies like Microsoft, Google, and AWS are investing over $100 billion in AI infrastructure, with costs passed on to enterprise customers.
- Many companies struggle with poor visibility into their software spending, making it difficult to measure the return on investment.
Widespread Budget Increases from AI Adoption
The integration of generative and agentic AI is creating a ripple effect across corporate budgets. The West Monroe study found that nearly half of the organizations surveyed experienced increases in licensing and subscription costs for both new contracts and renewals that exceeded the industry average of 10%.
This surge in spending is placing Chief Information Officers (CIOs) under greater pressure to justify their investments. Dhaval Moogimane, a practice leader at West Monroe, highlighted the core issue facing many organizations.
“The real challenge is tying spend back to value creation,” Moogimane stated. “Executives often do not have visibility into how much others are spending, so they are working off of limited information.”
This lack of visibility can lead to flawed decision-making. The survey also revealed a common perception among executives that their companies are overspending. Nearly two-thirds of respondents believe they pay more for software than their peers, while only 3% think their costs are lower.
Massive Infrastructure Investments Fuel Rising Costs
The underlying costs of developing and maintaining AI software are substantial. These expenses are driven by high computational requirements, the need for specialized talent, and continuous system maintenance. Jonathan Selby, a tech industry lead at Founder Shield, explained the financial dynamics.
“AI software is expensive to develop and maintain... leading some tech companies to raise prices to offset these costs and compress profit margins,” Selby noted. He added that competition and open-source models may eventually make some AI services more affordable, but for now, costs remain high.
The Trillion-Dollar AI Market
Global spending on AI is expanding at a rapid pace. According to projections from Gartner, the market is expected to grow by nearly 50% year over year, reaching almost $1.5 trillion in 2025. While cloud providers currently account for a large portion of this investment, spending by enterprise customers is steadily increasing.
Hyperscale cloud providers are making enormous investments to build out the necessary infrastructure to support AI development. These investments directly contribute to the higher costs passed on to enterprise clients. Recent major commitments include:
- Microsoft: A $30 billion investment in its Azure cloud infrastructure in the United Kingdom and an additional $4 billion in its Wisconsin data centers.
- Google Cloud: An additional $10 billion added to its plan to invest $75 billion in capacity expansion this year.
- Amazon Web Services (AWS): A $10 billion commitment for AI data centers in North Carolina, as part of a larger plan to invest $100 billion in infrastructure-related capital expenditures.
The Challenge of Tracking and Managing Spend
For many businesses, tracking AI-related expenses is a significant challenge because the costs originate from various parts of the organization. Erik Peterson, founder and CTO of CloudZero, an IT cost management platform, described the complexity of the situation.
“AI spend is coming in from so many different directions,” Peterson explained. “It’s coming in in the form of your own software engineering or in-house teams who are using AI to accelerate their work, and it’s replacing functionality in existing systems.”
This fragmented spending makes it difficult for leaders to get a clear picture of their total investment. Furthermore, issues like overprovisioning and "shadow IT" are inflating software budgets. Moogimane pointed out that many companies made large software investments in recent years with certain growth expectations that may not have materialized.
“Some companies also invested in higher levels of resiliency or support agreements than they currently require,” he added. The rise of shadow IT, where individual business units experiment with AI tools without central oversight, further complicates cost management.
Perception vs. Reality in Software Costs
A study by analytics firm Green Cabbage, cited by West Monroe, found that many companies are agreeing to double-digit price increases for software renewals. This is happening even though major vendors like Oracle, SAP, and Salesforce have implemented more modest rate increases of less than 10% for key products.
Vendors Adjust Pricing for AI Features
Several major enterprise software vendors have already announced price changes directly or indirectly linked to AI development. These adjustments reflect the higher value and increased operational costs associated with AI-powered features.
For example, Salesforce recently increased prices across several of its enterprise products by an average of 6%. Earlier in the year, the company raised the monthly per-user cost for its Slack business plans by 20%.
Microsoft also made significant changes by eliminating volume licensing program discounts for many of its cloud-based software suites, including Microsoft 365 and Dynamics 365, under its Enterprise Agreement and Microsoft Products and Services Agreement licenses. These changes effectively increase the cost for many large customers.
As AI adoption continues to be a priority, IT executives must balance fostering innovation with maintaining financial oversight. The proliferation of tools and rising vendor costs mean that managing software budgets will remain a critical challenge for businesses in the coming years.
