Enterprise software companies feeling AI’s ‘big squeeze’

Is it hot in here, or is it just the tightening grip of an emerging technology that might make us all irrelevant?

A report from global consulting firm AlixPartners says a “big squeeze” from two sides—new AI entrants and tech giants ready and resourced to buy AI—is threatening the survival of midsize enterprise software companies.

AlixPartners’s analysis of 122 publicly listed enterprise software companies below $10 billion in revenue revealed a steady decline in percentage of high-growth entities—firms with an annual revenue increase of 15% or more. The drop, according to the report’s writers, demonstrates a struggle for mid-tier companies to keep up with the AI race, including the “AI native” products that have included the intelligence features in their original designs.

“On the one side, these AI natives are really putting a lot of pressure on traditional enterprise software-as-a-service companies,” Mario Ribera, partner and managing director at AlixPartners, told IT Brew. “And then, of course, you have the very big tech companies, leaders like Microsoft and Amazon and Salesforce and others, that are pouring billions into AI. So, what happens in the middle is there’s a set of companies that are finding unprecedented challenges and slower growth.”

High-growth companies, according to the March 2025 report, decreased from 57% in 2023, to 39% in 2024. AlixPartners analysts expect further declines of 27% in 2025.

The big tech. Some tech giants have shown their commitment to AI in dollars—like Salesforce and Google’s investments in AI startups and ServiceNow’s acquisition of AI assistants like Moveworks—whereas others like Microsoft are growing more cautious when it comes to further investments in AI data centers.

The scrappy AI entrants. As customers demand tailored tools, the AlixPartners report read, “the enterprise software industry has seen a surge in smaller, more agile players offering specialized services, often at a lower cost and enabled by AI,” citing products like the ticketing tool Freshdesk from Freshworks, the business-app suite Zoho One from Zoho Corporation, and AI agent-builder Agent OS from Sierra.

Who’s left squeezed: A particularly vulnerable company, according to the AlixPartners team, is the “vertical SaaS” provider—a company serving a specific niche, which doesn’t own any data and is mainly providing a workflow with existing customer data.

“All of that can be replicated by an agentic solution,” Eric Wobig, partner at AlixPartners, said.

The AlixPartners team advises companies feeling the squeeze to dedicate significant R&D investment to large language models, to transition from traditional SaaS models to the development of agents, and to have a comprehensive business model transformation “across pricing, sales, marketing, operations, and revenue recognition,” citing Salesforce’s and ServiceNow’s outcome-based pricing as one example of a positive strategy change.

Name of the game. The competition for AI dominance is intensifying, and “those without native capabilities are investing significantly to stay in the game,” Avasant Research analysts concluded in March 2025, and some companies are redefining themselves to do so. (Duolingo is one recent example of a company declaring its commitment to an “AI-first” business.)

“A lot of these software companies are at an impasse because they’re known as software companies, they’re known as a CRM, they’re known as an ERP…And right now businesses aren’t looking to invest in software. They’re looking to invest in intelligence,” Dave Wagner, senior research director at Avasant, told us.

An email-security company formerly known as Abnormal Security recently decided to rewind the branding clock, now going by its original name from 2018, Abnormal AI. The rebranding aims to highlight their AI-from-the-beginning bona fides, according to company CIO Mike Britton.

“We were AI before AI was cool,” Britton assured us, not appearing—at least for the moment—to feel any squeeze.