SaaSletter - Positive B2B AI Signs

Morgan Stanley - “GenAI Adoption - 2 Years In” → Increasing Returns At Scale

Edward Stanley and Matias Ovrum from ’s Thematics team released a “GenAI Adoption - 2 Years In” 80-page report.

This slide was particularly powerful:

• ~40% of project ROIs are beating expectations
• ~10% of projects missed expectations. A 10% figure looks good in the context of historic IT project failure rates in the 20%-30% range (granted definitions vary)
• More importantly, ROI increased with customer scale

We covered increasing returns to scale for AI customers in our (long ago by AI standards) 2023 “AI In Finance And The Enterprise” note (h/t Art L. + Matt Torman ):

Key excerpts here:

"In my view, the equivalent formula for AI will look like:?

AI ROI = (Business Process Value x Volume) / AI Costs

While the numerator is straightforward, a few notes on the AI costs denominator:

• Data: Cleaning and labeling data are real costs.
• Quality assurance: Checking outputs for accuracy requires real resources. This is especially important in enterprise and finance use cases.
• Setup: These include process mapping, prompt engineering, and security reviews.
• AI vendor costs: Given compute costs, I expect usage-based pricing to be the default for AI."

Winning Buyers: Larger Orgs

Importantly, those “AI costs” are relatively fixed.?

Using an existing AI use case of accounts receivable management as an example, the all-in costs for a $400 million revenue and $100 million revenue would be relatively similar, at least relative to that 4x revenue disparity.?

For that relatively similar AI cost, the $400 million org is able to automate 4x the amount A/R processes.

Moreover, that $400 million org has more absolute dollars to invest in getting their AI strategy right. Let’s assume each firm allocates 0.5% of revenue to AI (a meaningful portion of their IT budget) — $2 million dollars of spend should win out versus $0.5 million.?

Lastly, that $400 million org should have a larger pool of data to build models from.

These factors imply that larger-scale AI adopters should be the most advantaged."

Morgan Stanley - “GenAI Adoption - 2 Years In” - More Highlights

Less visible relative to our public-facing ROI reports (example report with RELAYTO), Cloud Ratings True ROI practice area supports private value engineering engagements as a 3rd party intermediary between vendors and software buyers.

We are currently involved in multiple $7-figure and $8-figure ACV evaluations, all of which involve very large enterprises carefully evaluating the ROI from emerging AI vendors.

If you or your portfolio companies need ROI support and validation, please email me. I lead every engagement with the support of a former CFO.

The key message from our engagements and Morgan Stanley: the rise of GenAI has elevated ROI focus (i.e., 96% evaluating ROI for AI, very likely ahead of “mature” software purchases) and rigor (i.e., engaging 3rd parties like Cloud Ratings True ROI).

Other excerpts from Morgan Stanley: the below AI priority heatmap and project funding cut-offs (~6-18 month window) on my Twitter

Recent Positive AI Data From Bain + ICONIQ

Morgan Stanley’s positive findings have support from recent AI reports from ICONIQ Growth (our earlier coverage of ICONIQ’s “State of AI”) and 贝恩公司 findings (presented at Ray Rike ’s SaaS Metrics Palooza, our Bain AI coverage here and below)

September 2024 B2B AI Interest Index from Cloud Ratings

We’ve updated our B2B AI Interest Index through September 2024 - full slides below:

B2B AI INTEREST INDEX SLIDES

Like August, September trends represent a reversal from broadly negative trends in June and July.

Thematic Category Interest (n = 47 sub-categories tracked - i.e. “manufacturing AI” or “security AI”) rebounded:

Bellwether Microsoft Copilot accelerated due to a Phase 2 Copilot release announcement in mid-September (ZDNet’s recap of enhancements here). Other “Blue Chips” (i.e., Hubspot, ServiceNow) increased slightly but remain range-bound and small in absolute terms.

SaaS Incumbents (n=340, same 340 vendors tracked in our top-of-the-funnel focused, forward-looking SaaS Demand Index) increased… within a plateau pattern:

Largely driven by continued explosive growth in PolyAI (“enterprise conversational assistants that carry on natural conversations with customers to solve their problems”), interest in AI Native apps (n=50) increased again:

Recent AI Podcast With OMERS Ventures

Building on their 152-page(!) vertical AI framework report (email required), we recently debuted our episode with Marissa Moore, CFA and Taku Murahwi of OMERS Ventures

VIDEO | AUDIO: Apple Podcasts | Spotify | All Platforms

About Cloud Ratings

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with this slide showing how our G2-enhanced Quadrants (like our recent Sales Compensation Software) release, this business of software newsletter you are reading, our podcasts, and our True ROI practice area all fit within our modern analyst firm: