Introduction: As a new year emerges, the enterprise application market continues to evolve, being shaped by both internal and external forces. For the software as a service (SaaS) market, several trends are reshaping the way businesses operate and interact with their customers. Although some of these developments have been in the works (such as the arrival of generative AI and the focus on personalized experiences), 2024 may be the year in which SaaS vendors truly begin to define the trajectory of the industry.
The Enterprise Application Market Outlook for 2024
Analyst Take: As SaaS vendors continue to evolve and expand, several trends continue to emerge that likely will shape how vendors package, market, price, and deliver their products. Although many of the factors that are impacting the market today were the direct result of the shift to a more digital economy in the late 2010s and the impact of the COVID-19 pandemic in the early part of this decade, other factors are being driven by the maturity of the market, and the desire of both vendors and their customers to extract more value and efficiency out of their technology investments.
The following trends are likely to bubble to the surface in 2024, and, in many cases, continue for several years.
Generative AI Goes GA and Becomes Table Stakes
Generative AI, once confined to research labs and beta tests, is now entering the mainstream within the software industry. This year will mark the general availability of generative AI assistants targeted at enterprise workers, and, in some cases, small businesses and consumers. General availability of generative AI tools marks a significant shift in the technology’s maturity, making it more accessible to a wider range of businesses across industries, thereby accomplishing the goal of generating additional revenue for SaaS vendors while helping to improve efficiency and speed when trying to accomplish basic tasks.
Many large SaaS vendors have announced that their generative AI functions are generally available now, or will be during the first half of 2024, including Salesforce, Automation Anywhere, Microsoft, Amazon, ServiceNow, OpenText, and Adobe, among others. As these generative AI assistants continue to become generally available, it is likely that most buyers will begin to assume that most SaaS vendors’ platforms are equipped with this technology. This will create a scenario through which generative AI becomes somewhat commoditized, and an expected feature or capability, instead of a “shiny new object” that is used to differentiate one offering from another. Ultimately, I expect (and hope) that as the major SaaS vendors roll out their generative AI tools in 2024, vendors will begin to focus less on features, and more on the ROI and benefits that these tools can provide to customers.
Vendors Will Try to Introduce Usage/Consumption-Based Pricing Models
The market for generative AI functionality is still extremely nascent, and as a result, most vendors are admittedly still trying to assess the most advantageous pricing models. At present, most SaaS vendors are pricing their generative AI offerings on a per-user, per-month basis, which provides vendors with a regular stream of revenue that, if they are lucky, will cover the actual cost to deliver generative AI technology while providing a cushion to elicit a profit. However, SaaS vendors admit that this pricing is based on assumptions on average use and is not necessarily correlated with actual usage of the technology and may not be sustainable as organizations begin to use it regularly. As usage ramps up, some organizations will pull back as they realize their per-user, per-month charges far outstrip the ROI delivered. Similarly, vendors may be tempted to cap usage when users or organizations utilize generative AI far more heavily than anticipated.
That is why the overriding pricing model that is gaining favor in the market among vendors is consumption-based pricing. Unlike seat-based pricing, consumption pricing better aligns the actual cost of providing generative AI functionality with the price paid by customers. Indeed, generative AI cost features two components: training costs, which can be fairly easily managed, and inference costs, which rise as utilization increases and impact data transfer and storage costs.
In addition, more complex generative AI tasks, such as generating images from text prompts or removing extraneous noise from recordings, can also result in greater demands on the AI models. As AI models incorporate a greater amount of data and are charged with providing more complex outputs, the impact on processing and data transfer costs will continue to increase.
Adobe is one vendor that appears to be leading the charge toward consumption pricing; it makes generative AI tools available within a license but incorporates a token-based system to better link the complexity of a given generative AI task to the cost of completing it. I expect that as the company captures more usage data, it will refine and clarify its pricing to better align functionality with cost.
Furthermore, I expect that sometime in 2024, one or more SaaS vendors will begin to roll out consumption-based pricing options alongside per-seat pricing, which will be positioned as a way to tie usage more closely to actual costs.
Enterprises Will Focus on Consolidating Their Technology Stacks
The relentless pace of technological advancement has led to the proliferation of diverse technologies and tools within organizations. In some cases, this has led to the duplication of functionality, the accumulation of applications that are rarely or no longer used, and the demand for technical skills to maintain an aging infrastructure.
I expect that in 2024, organizations will continue to focus on integrating and optimizing their existing technology stacks to achieve better interoperability and collaboration between different systems. This consolidation enhances efficiency, reduces redundancies, and paves the way for a more seamless and connected digital ecosystem.
One driver of this trend is the incorporation of new technologies—namely generative AI—across the enterprise, which is causing IT departments to scrutinize the applications and systems more closely in use, assess which ones are necessary and capable of being integrated with generative AI and other technologies, and prune the stack where necessary.
Digital adoption platforms, such as those from WalkMe and SAP, are likely to see an uptick in utilization in 2024, as organization seek to get more visibility into the use of applications and the identification of friction points that impact application usability. Similarly, integration platform as a service (iPaaS) vendors, such as Tray and Boomi, which enable organizations to connect disparate applications and technology platforms and systems, are also projected to increase in utilization to help IT departments gain more visibility and interoperability within their ecosystems.
SaaS Vendor Consolidation Will Accelerate
With the tech landscape saturated with various solutions and services, consolidation among SaaS vendors may be on the horizon. Increasingly, vendor offerings are becoming somewhat commoditized, in terms of the features and capabilities. Winners and losers will be determined by the ability to deliver ROI, which, more often than not, has more to do with the vendor’s ability to deliver value seamlessly, quickly, and with little friction, across all phases of installation, customization, integration, and launch.
As such, I predict that industry consolidation will rise in 2024, particularly as some SaaS vendors find it difficult to acquire, build, incorporate, and deliver generative AI capabilities while keeping their focus on delivering value to customers. If this trend comes to fruition, it will not only enhance the efficiency of technology ecosystems but also simplify decision-making for businesses in choosing the right partners.
A Focus on Personalization Continues in B2C Markets and Expands to B2B
The era of one-size-fits-all solutions is fading, with personalization becoming a key driver of customer satisfaction and loyalty. In the business to consumer (B2C) space, personalized experiences, tailored recommendations, and targeted marketing strategies are becoming the norm. This trend is expected to spill over into the business to business (B2B) sector, where businesses will increasingly adopt personalized approaches to engage clients, deliver customized solutions, and build stronger relationships. After all, buyers at B2B companies have become accustomed to personalization in their non-work lives and realize that the technology is available to provide similar levels of personalization to business interactions. Vendors that are able to design their platforms to account for the specific structures and workflows used in B2B interactions (multiple influencers, buyers, and buying/approval paths) will be able to tap into a robust new pipeline of potential customers.
Industry/Niche-based Approach to SaaS Sales and Marketing
As SaaS vendors’ offerings continue to proliferate, a shift toward a segment/niche-based approach in sales and marketing is emerging. Instead of employing broad and generic strategies, companies are tailoring their messaging and outreach to specific industries or use cases. This approach allows for a more targeted and effective engagement with potential customers, addressing their unique pain points and requirements.
In 2024, I predict that large SaaS vendors that have not already created industry or vertical-specific offerings will do so, which enables them to spur conversations with buyers around their unique needs while fending off challenges from smaller, entrenched competitors that have years of experience working within a specific industry. The key to success, as always, will be to make sure that the product teams are being advised by those with real industry expertise and that sales professionals and customer success teams are similarly led by or advised by those who truly understand the unique challenges within each industry or niche segment.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
Other Insights from The Futurum Group:
WalkMe Analyst Day Recap: Putting DAP Front and Center
Enterprising Insights: Episode 6 – SaaS Pricing Trends
Author Information
Keith has over 25 years of experience in research, marketing, and consulting-based fields.
He has authored in-depth reports and market forecast studies covering artificial intelligence, biometrics, data analytics, robotics, high performance computing, and quantum computing, with a specific focus on the use of these technologies within large enterprise organizations and SMBs. He has also established strong working relationships with the international technology vendor community and is a frequent speaker at industry conferences and events.
In his career as a financial and technology journalist he has written for national and trade publications, including BusinessWeek, CNBC.com, Investment Dealers’ Digest, The Red Herring, The Communications of the ACM, and Mobile Computing & Communications, among others.
He is a member of the Association of Independent Information Professionals (AIIP).
Keith holds dual Bachelor of Arts degrees in Magazine Journalism and Sociology from Syracuse University.
