tl;dr
- AI-powered software development tools, no-code platforms, and AI agent engineers are making custom software development more accessible, potentially flipping the build-vs-buy dynamic in enterprise software.
- Off-the-shelf software will evolve into “malleable” solutions, easily customizable by end-users — driven by embedded AI.
- Enterprises will increasingly prioritize custom solutions for niche use cases, reallocating budgets toward AI-driven tools that better address specific business challenges.
Enterprise software is undergoing a major transformation. AI isn’t just changing how we use software — but also how we create it. We’re moving into an era where custom, adaptable software is designed to meet specific business needs.
Right now, it’s estimated that 70–80% of enterprise software is purchased off-the-shelf, with only 20%-30% being custom-built. But that’s about to change. Tomorrow’s reality looks quite different. We predict it could look something more like 60% custom, 40% off-the-shelf as AI flips the script on cost and feasibility.
This shift has profound implications for both enterprise and traditional software companies. Let’s dive in.
Why now?
I believe there are several forces converging to drive this shift in enterprise software:
- AI-powered engineering tools are slashing development costs. Products like Github Copilot, All Hands AI, and Cursor AI are making software development faster and easier. These tools reduce the complexity of coding, enabling businesses to create custom solutions that are tailored to their specific needs more cost-effectively.
- The democratization of software development is lowering barriers to entry. Low/no-code platforms are expanding the number of those who can participate in software development. These platforms allow non-technical users to create and deploy applications without needing to write code. As these platforms become more sophisticated, they empower a wider range of people to build solutions that meet their specific needs, thereby increasing the overall accessibility of software development and ultimately broadening the base of who can develop software. We’ve previously explored the promise of AI-native no-code tooling, which further amplifies this trend.
- The emergence of “malleable” software will redefine off-the-shelf solutions. As AI and democratized development tools take hold, we’re seeing the rise of what’s known as “malleable software.” This term, mentioned by Geoffrey Litt in a blog, refers to software that, while initially purchased off-the-shelf, can be easily modified and adapted by end-users to meet their specific needs through the use of an LLM.
Imagine a CRM or ERP platform that is bought as a standard product but is inherently designed to automatically adjust to your business processes. Or consider AI agents within this software that can generate new features on-demand based on the requirements the end-user provides. This kind of software is not just customizable; it’s fundamentally flexible and designed to evolve with your business. Despite being off-the-shelf, its true power lies in its ability to self-customize and blur the boundaries between user and developer. This is the future of enterprise software — where the adaptability of custom-built solutions meets the accessibility of off-the-shelf products.
What it means for enterprises
- Custom solutions for niche use cases: Easier to build one-off tools for a small subset of users (i.e. back office tool for 10 users)
- Budget reallocation: Organizations may shift their budgets — spending less on traditional software and more on AI-driven development so they can invest in tools that support their unique operational needs.
What it means for software companies
- Decreased demand for one-size-fits-all solutions: as businesses shift towards custom solutions, the demand for generic software will likely decrease. Companies that offer rigid solutions may struggle to stay relevant.
- Increased competition from new entrants: Next-gen providers will be AI-native and designed to be malleable. Incumbents must consider how their products will cater to these new expectations.
- Rethinking business models: As both AI and custom/malleable software enable increased task automation, companies need to consider new pricing models.
The bottom line? SaaS companies need to adapt or risk being left behind.
Looking ahead…
We’re at the beginning of a new era in enterprise software. Here’s what we’re excited about:
- A confluence of internal tool building: Over the next two years, we’ll see a significant increase in the creation of internal tools and we’re looking for tools that usher in and enable this trend.
- Rise of AI-powered software development teams: Companies will increasingly rely on software teams to develop and maintain custom software.
- Emergence of new players: New companies will enter software categories built with AI and flexibility in mind, challenging incumbents.
The era of closed SaaS ecosystems is ending. The future belongs to malleable, AI-powered software that adapts to businesses’ unique needs.
