How AI is Changing the Software Spending Landscape
New analysis of US$11bn from spend management solution Tropic has found that software spending jumped 10% in 2024, as suppliers added an abundance of AI features that generally increased overall costs.
This report also found that OpenAI led the way when it came to software vendors – finding that it had a 146% year-on-year growth – with some enterprise tools, such as Salesforce and Slack, witnessing their market share decline slightly – which was the first time in several years that this has happened.
"Companies are continuing to aggressively invest in software but are being really smart about it as we enter a consolidation and replacement cycle," says Justin Etkin, Chief Operating Officer of Tropic.
"While we're witnessing some consolidation of tools across legacy players, and businesses pushing back against paying premium prices for AI features they may never use, we're also seeing AI-native tools, which excel at creating operational efficiency, come into their own and begin to pick up market share."
Buying trends for effective spend management
The 2025 Software Buying Trends for Effective Spend Management report provides key insights into how companies of all sizes, from small businesses to large enterprises, are approaching software procurement, pricing negotiations and emerging technologies like AI.
Key findings include:
- AI: Driving adoption and some price inflation: Apart from OpenAI, tools such as Canava and Ashby saw triple-digit growth rates. 19 of the 20 fastest-growing software companies prominently feature AI in their branding and some vendors are using AI features to justify price hikes as traditional seat-based pricing is disappearing, replaced by unpredictable, usage-based fees.
- Either negotiate or cough up: With many suppliers continuing the trend of raising costs, such as security software witnessing the highest average year-on-year increase at 56% per full-time employee. Those leading teams are beginning renewal negotiations six months in advance – benchmarking pricing to secure the best terms possible.
- An increase in contract lengths: Average contract length has increased to 14.2 months, which is a 6% increase from last year. Suppliers are pushing for multi-year commitments, especially in enterprise software categories, making price protection clauses critical to avoiding future cost spikes.
- Holding true: Economies of scale: Companies with 1,000 - 10,000 employees spend an average of US$21M annually on software, while small businesses spend US$1.9M. When adjusted for full-time employees, mid-sized businesses are paying a higher per-employee rate than larger organisations.
- Consolidation of software continues: There is a real desire for companies to streamline their tech stacks, in some cases favouring platforms which provide built-in features over standalone tools. An example is Slack, which saw a decline in adoption as businesses moved to integrated solutions like Microsoft Teams and Google Workspace to cut costs.
2025 and the Road Ahead
Software spending is set to continue growing, with companies needing to reassess their procurement strategies to balance cost control along with innovation.
- Adopt a "spend-per-employee" metric to ensure software investments align with workforce productivity.
- Prioritise negotiation tactics such as competitive benchmarking, early renewal discussions, and contract safeguards.
- Evaluate AI investments carefully, considering both the value delivered and the pricing structure of new tools.
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