23 Daily — According to saastr.com, Menlo Ventures released its fourth annual State of Enterprise AI report, revealing that enterprises will spend
Majority of AI spending comes from new budgets rather than software line items
Menlo’s survey of approximately 400 U.S. enterprise decision-makers controlling over $4 billion in AI spending found that 55% of incremental AI budget is net-new, with only 22% coming from existing software budgets, and the remainder from labor and other lines. Of the 22% software budget share, 13 percentage points go to incumbents converting existing seat licenses into AI products, while 9 percentage points (
AI spending distribution highlights competitive dynamics between incumbents and startups
The report indicates that competition between AI-native startups and legacy seat-based software vendors over software budgets is a relatively small segment, mostly won by incumbents. Menlo emphasizes that B2B AI products priced at least twice the traditional seat price and still accepted by customers generally tap into the 78% of budgets outside the software line. This aligns with SaaStr’s experience where AI agents replaced human headcount, boosting revenue despite a smaller human team.
AI application categories show strong growth in coding and workplace assistants
Menlo estimates coding-related AI spending at $34 billion (7.7x growth), and workplace assistants and chatbots at 5 billion, together comprising 76% of AI application spend. Vertical AI sectors such as healthcare ($3.7 billion) and legal (
Editor's take: Enterprise AI spending patterns signal opportunities for startups to unlock new budgets
The Menlo report clearly shows that the majority of AI spending originates from net-new budgets beyond traditional software lines, emphasizing that startups aiming to succeed in B2B AI should focus on delivering solutions that provide value significantly beyond replacing seat-based software licenses. Products that can demonstrate tangible productivity gains or cost savings tend to access new corporate budget allocations. Entrepreneurs can validate these opportunities by engaging enterprises with concrete use cases highlighting labor cost reductions, process optimization, or efficiency improvements.