ISVs optimistic but remain challenged with GenAI development

While the rush to embrace GenAI is understandable, ISVs must balance this enthusiasm with careful planning and consideration of both explicit and latent customer needs, reveals Forrester Research study commissioned by AWS.

Independent Software Vendors (ISVs) are transitioning to deliver more impactful products as they look to cater to GenAI demands. While the global market does offer plenty of opportunities, one of the biggest challenges ISVs are facing is determining the pricing strategy.

According to a study by Forrester Research, which was commissioned by AWS, ISVs will need to invest in approaches that solve customer challenges with flexible pricing models, use scalable infrastructure and security, develop training programs, build strong partnerships for market expansions.

The Mining the Generative AI Gold Rush study surveyed 657 executives and decision-makers at ISVs in APAC, EMEA, and North America. Not only did the report reveal the challenges ISVs are facing, but it also highlighted the opportunities that are available globally in the various regions.

Specifically, the report revealed that global spending on GenAI is projected to grow at an annual rate of 36% through 2030. This has somehow led to a gold rush among ISVs to offer GenAI solutions. The survey revealed that 60% of decision-makers from ISVs have seen their R&D budgets increase by 5% or more. 57% also reported a 5% or greater increase specifically for GenAI product development.

Globally, ISVs are quickly aligning to customer expectations with these developments. However, the report also stated that while “the rush to embrace GenAI is understandable, ISVs must balance this enthusiasm with careful planning and consideration of both explicit and latent customer needs.”

Challenges in developing GenAI

An interesting revelation from the study revealed that some development in GenAI solutions is being sold as solutions while they are still being experimented on. This is clearly to rise ahead of the competition but could result in a failed execution or one that fails to be a proven business model.

Apart from that, navigating a competitive market (42%), establishing effective pricing strategies (42%), scaling their business models (37%), and accurately gauging market demand as well as adoption (37%) remain obstacles when it comes to developing GenAI.

“This means ISVs struggle to differentiate their products, predict market needs, operate profitably, and expand their operations without compromising on quality or efficiency. It underscores significant planning pitfalls and suggests that ISVs driven by opportunism may lack a viable business model for GenAI,” stated the study.

As such, to ensure profitable growth, ISVs are looking to prioritize scalability, along with compute and integration tools and technologies to drive value with GenAI. This includes integrating customer feedback into product development (68%), investing in R&D to drive innovation (68%), adopting emerging technologies (66%), and leveraging data and analytics to inform decision-making (66%).

ISVs are also poised to transition from simple, problem-specific solutions to more complex, deeply integrated products. According to the survey, this shift is evident in ISVs’ plans to generate additional value for customers with GenAI by offering more customization (47%), build stronger partnerships and ecosystem (44%) and improve integration with tools and technologies (43%) to enhance customer value.

ISVs in APAC

While the study was conducted globally, statistics from APAC reveal similar findings as well. When it comes to launching GenAI products, 66% of ISVs have already initiated this as the demand for AI in the region seems to be growing at a faster rate. In fact, government subsidies and programs in the region towards enterprises in adopting and developing AI use cases are most likely driving ISVs to develop and launch more GenAI products as well.

This is evident in the R&D budget for GenAI product development in APAC. According to the report, ISVs in APAC earmarked 56.7% of their R&D budget to GenAI product development, having a 43.3% overall adjustment on budget. The study also revealed APAC ISVs reporting performance optimization (58%), automated scaling (56%), and partnerships (58%) as their top GenAI infrastructure priorities.

Partnerships in particular will be key to AI development not just in APAC but globally. The study revealed that ISVs have concentrated on creating the technical partnership with hyperscalers and frontier model builders to tackle cost runs.

“To get to the next phase of GenAI solutions that are specific, ISVs must build strategic relationships with hyperscalers and frontier model builders to co-define and develop products that link the partner offer to tangible, proven scalable genAI solutions. ISVs that can craft impact for customers improve partnership value and provide a sustainable and growing market that drives competitive advantage for themselves and their partners,” the report stated.

At the same time, to achieve growth and revenue, ISVs should invest in R&D that addresses areas of vertical and administrative solutions that help their customers transform how they do business, such as reengineering processes, building new customer experiences, and disrupting with new products, services, and ways of doing business. As customers struggle with GenAI skills and resource availability, ISVs must expand their own talent beyond GenAI and technology and bring in vertical and operational expertise to develop solutions that are ready and easy for customers to adopt and get faster time to value.

More importantly, ISVs should not take shortcuts when developing GenAI models. As the report clearly indicated, not even one-third of respondents considered trust in regulatory compliance (30%), data security (24%), and IP protection (22%) as critical to their customers. This is very concerning as the neglect could ultimately undermine their efforts and have serious repercussions.