Forrester: Artificial Intelligence Software Growth Will Fall Below Current Investor Projections

Rhea-AI Summary

On December 10, 2020, Forrester (Nasdaq: FORR) reported that the artificial intelligence (AI) software market is projected to reach $37 billion by 2025, significantly lower than investors' expectations of $150 to $200 billion. Key factors include: less than 3% of AI software revenues being expected from the overall application market post-2023, 60% of software buyers anticipating AI features from existing vendors, and the diminishing ability for AI-infused applications to command premium prices. Growth opportunities lie in AI maker and facilitator platforms.

Positive

• None.

Negative

• Projected AI software market growth is significantly lower than current investor expectations, with a forecast of $37 billion compared to $150 to $200 billion.
• Only less than 3% of AI software revenues are expected to contribute to the overall application market post-2023.
• 60% of software buyers expect AI functionality from existing vendors, reducing opportunities for new custom solutions.
• The capacity for AI-infused applications to maintain premium pricing is declining as competition increases.

CAMBRIDGE, Mass., Dec. 10, 2020 /PRNewswire/ -- According to Forrester (Nasdaq: FORR), the overall artificial intelligence software market — despite ballooning to $37 billion by 2025 — will fall below current investor projections of $150 to $200 billion for the same time period. Within the AI software market, AI application growth will be constrained by technology vendors embedding AI functionality into existing software products with greater frequency.

A new Forrester report, "The AI Software Market Will Grow To $37 Billion Globally By 2025," outlines key reasons for this updated AI software market outlook — which leaves out hardware and consulting services — including:

• Post-2023, AI software revenues will be less than 3% of the overall application market. AI in business apps will be the norm, prompting AI-centric and AI-infused applications to dip further within the overall application market.
  
  
• Sixty percent of software buyers will expect AI functionality from existing vendors. Sixty percent of software buyers, and likely more over time, expect to receive AI functionality from existing vendors, rather than custom-creating their own applications.
  
  
• AI-infused applications will be unable to sustain premium-product status. Currently, 10% of vendors are offering AI-infused apps at differentiated prices. As vendors add more AI functions, the ability to charge a premium for AI will be lost in competition.

The report further states that AI maker platforms used for creating highly customized solutions and AI facilitator platforms used for applications including computer vision and natural language virtual assistants have the strongest growth potential. Other AI market segments likely to grow include AI-centric applications for specialized medical tasks and AI-infused applications that create differentiated products through added AI functionality.

"While we're seeing high demand for AI technology, platforms, and applications, AI's ubiquity will ultimately make the technology commonplace in software development," said Andrew Bartels, VP and principal analyst at Forrester. "We believe investors are defining the AI market too hyperbolically. They are mistakenly including categories that are loosely influenced by or distantly adjacent to AI software. As business leaders rely more and more on AI as a tenet of their digital transformation strategy, they will likely expect their vendors to add AI functionality at no additional cost to them."

Resources:

• Access the Forrester report, "The AI Software Market Will Grow To $37 Billion Globally By 2025" (client login required).
• Read more about Forrester's AI market outlook in this blog post.
• Register to attend Forrester's upcoming webinar: "AI Software Market Sizing: Understand Forrester's Four Segments To Invest Wisely."
• Visit Forrester's Predictions 2021 hub to learn more about AI trends critical to 2021.

About Forrester

Forrester (NASDAQ: FORR) is one of the most influential research and advisory firms in the world. We help organizations grow through customer obsession: putting their customers at the center of leadership, strategy, and operations. Through Forrester's proprietary research, consulting, and events, business and technology leaders from around the globe are empowered to be bold at work — to navigate change and build customer-obsessed growth strategies. Our unique insights are grounded in annual surveys of more than 675,000 consumers, business leaders, and technology leaders worldwide; rigorous and objective methodologies, including Forrester Wave™ evaluations; and the shared wisdom of our most innovative clients. To learn more, visit Forrester.com.

Media Contact:
Ira Kantor
Public Relations
Forrester Research, Inc.
ikantor@forrester.com

 

 

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SOURCE Forrester

FAQ

What is the projected growth of the AI software market according to Forrester's December 2020 report?

Forrester projects the AI software market will grow to $37 billion by 2025.

How does Forrester's AI market projection compare to investor expectations?

Forrester's projection of $37 billion is significantly below investor expectations of $150 to $200 billion.

What percentage of software revenue is expected to come from AI post-2023?

Less than 3% of AI software revenues are expected to come from the overall application market post-2023.

What do 60% of software buyers expect regarding AI functionality?

60% of software buyers expect AI functionality from existing vendors rather than creating custom applications.

Why are AI-infused applications losing premium pricing power?

As more vendors add AI capabilities, the ability to charge a premium for AI-infused applications is diminishing due to increased competition.