Earlier this year, software markets experienced a sharp re-rating as investors questioned how AI could affect pricing models, competitive advantage and long-term growth. Yet while uncertainty has increased, the growth opportunity for software may be larger than at any point since the transition to cloud.
New era, new opportunities
Historically, software helped people perform work. Increasingly, it is beginning to perform the work itself. As AI systems take on more tasks, decisions and workflows, the market expands beyond traditional technology budgets and into a much larger pool of labour, services and operational spend. Global software expenditure today is approximately $1.3tn. The wider services markets that AI-enabled software can influence represent more than $50tn globally. As software takes on a greater share of execution, the economics of the sector change fundamentally.
“The shift underway is changing the role software plays within organisations. Software is moving closer to outcomes, creating opportunities for vendors to participate in a much larger share of enterprise value creation.”
Bobby Maclay
Partner, Strategy& UK
A bigger market, a bigger challenge?
The opportunity is significant, but so too is the increase in competitive intensity. AI-native companies are targeting high-value activities without replicating entire application suites. Agentic platforms are emerging as new layers of orchestration across enterprise systems, changing how software is consumed and where value accrues. Established vendors are accelerating innovation across their portfolios, while advances in AI continue to reduce the cost and time required to develop software. The result is a market that is growing rapidly while becoming harder to defend.
Many of the assumptions that have defined the industry are now being challenged. Advantage is becoming less dependent on workflow ownership and increasingly linked to trusted execution, proprietary context, domain expertise and the ability to deliver measurable outcomes. As software moves closer to execution, commercial models are also evolving, with traditional seat-based pricing increasingly complemented by usage, output- and outcome-based approaches that better reflect the value delivered. Further, product and engineering velocity is becoming a more important source of differentiation.
“Customer trust, deep domain expertise and proprietary data remain powerful sources of advantage. The opportunity for software leadership teams is to translate those strengths into differentiated AI propositions and new sources of growth.”
Warren Tucker
Partner and Technology Leader, PwC UK
Time to rethink the model
For CEOs, AI changes the sources of growth, the foundations of competitive advantage and the shape of the software operating model. The agenda extends beyond product innovation to strategic choices about market positioning, investment priorities and how value is captured. Leadership teams will need to determine where AI expands the opportunity, how it reshapes existing markets and how their organisations can compete effectively. This includes rethinking commercial models, innovation and the metrics used to measure success in an increasingly outcome-oriented market. It also requires transformation across operating models, functional capabilities, talent, culture and ways of working. While many organisations recognise the scale of the opportunity, the greater challenge is translating ambition into execution. Organisations that adapt earliest will be best positioned to capture the opportunities ahead.
The software sector has repeatedly reinvented itself, from digitisation to cloud and SaaS. AI represents the next phase of that evolution. The leaders of the next era will be those that move beyond deploying AI features and reshape how they create value, deliver outcomes and operate their businesses. Those that act decisively now will help define how value is created, captured and measured in the next era of software.
From workflow to work: how AI rewrites the software business model
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