New Data Show Anthropic, OpenAI and Other Upstarts Are Eating into Software Budgets

We’ve been reporting for months about how companies are shifting some traditional software spending to Anthropic and OpenAI. New data from procurement software firm Zip provides further evidence.

AI providers such as OpenAI, Anthropic, Cursor, and Sierra accounted for 8% of spending by Zip customers in the 12 months that ended in August, up from 1.4% during the previous 12 months. Overall, their software budgets rose by a median of 13% during that period.

The dozens of customers included in the study had an average of 2,400 employees and spent $18 billion for software, including AI, over the past four years. Zip’s customers include Snowflake, OpenAI, Datadog, Cloudflare and AMD.

The shift is putting pressure on legacy software vendors to step up their game. Several enterprise software firms such as Workday and HubSpot as well as cloud providers Microsoft and Amazon are offering discounts or free trials of AI products to retain customers, we reported today.

But just as the older companies are dangling those freebies, they’re also introducing more costly pricing models that charge customers for how much AI they use, rather than giving them unlimited AI as part of their subscriptions. Once the freebies end, some companies may decide the tools aren’t worth the hassle.

Usage-Based Costs Rising

With the shift to usage-based pricing, some customers are still seeing their bills rise, despite some discounts.

This summer, for instance, spending by software provider Pegasystems on Microsoft’s Github Copilot, an AI coding tool, surged to $260,000 monthly from $20,000 after Microsoft shifted to usage-based pricing for the tool.

“What I find really frustrating is [AI providers] put so much burden on companies, people like us, to detangle…what is the right way to use these” in a cost effective way, said David Vidoni, Pega’s chief information officer. (Pegasystems, which helps banks and telecoms to automate fraud detection and customer billing issues, spends between $10 million and $15 million annually on software, including AI.)

After executives at Pegasystems balked, Microsoft offered the company one million credits worth $10,000 to use another tool, Copilot Cowork, an AI assistant akin to Claude Cowork, for one month. But that’s relatively piddly compared to the financial incentives Microsoft has given to other customers, our story today showed.

But the financial incentive might work: Vidoni plans to expand testing of Copilot Cowork in his finance and marketing teams. Meanwhile, he is finding ways to cut costs linked to Github Copilot and other AI tools through employee spending caps and other methods. (Pega uses a variety of Microsoft tools beyond Github Copilot that could also make switching harder, though it does not run any customer-facing software products on Azure.)