SaaS companies' newest rivals are their own customers

Last year, several companies, including Spotify and Twilio, began developing their own software tools instead of purchasing them from enterprise software vendors like Workday, SAP, and Salesforce. The rise of generative AI has given organizations a third option when it comes to building internal tools: creating them in-house using AI. This shift has helped companies save significant amounts of money, but it also leaves them responsible for any potential issues that may arise with the software.

For example, Spotify built an HR Bot to help employees with HR-related queries, while Twilio created an AI tool called Jarvis to coach its salespeople. These tools saved Spotify and Twilio millions of dollars annually. A recent survey by McKinsey found that about a third of organizations decided against purchasing at least one software product or feature because they could build it using AI tools.

While AI-powered tools can be beneficial, they also come with risks. If an AI-powered tool makes costly mistakes, such as leaking confidential information or making an audit error, the consequences can be severe. Large enterprise vendors offer years of experience and vast amounts of data, which may make it difficult for smaller companies to compete.

West Monroe's chief people officer, Tanya Moore, acknowledged that while building in-house tools can be challenging, the potential savings make it a worthwhile endeavor for some companies.