30% of GenAI projects to be abandoned next year new report predicts
At least 30% of generative AI projects will be abandoned by the end of 2025, due to poor data quality, inadequate risk controls, escalating costs or unclear business value, according to a report from marketing research firm Gartner. Financial reports from big tech companies the last few weeks have shown their giant investments in AI but markets have been hesitant looking for more proof that the huge investments will be profitable.
Google reported increased capex ( capital expenditure) of more than 90% in Q2, Microsoft and Amazon more than 50% and Meta 30%.
“After last year’s hype, executives are impatient to see returns on genAI investments, yet organisations are struggling to prove and realise value. As the scope of initiatives widens, the financial burden of developing and deploying GenAI models is increasingly felt”, Rita Sallam, VP Analyst at Gartner, told a company conference.
The Gartner report says a major challenge for organisations arises in justifying the substantial investment in GenAI for productivity enhancement, which can be difficult to directly translate into financial benefit..
“Many organisations are leveraging GenAI to transform their business models and create new business opportunities. However, these deployment approaches come with significant costs, ranging from $5 million to $20 million.”
“Unfortunately, there is no one size fits all with GenAI, and costs aren’t as predictable as other technologies,” says Sallam.
“What you spend, the use cases you invest in and the deployment approaches you take, all determine the costs. Whether you’re a market disruptor and want to infuse AI everywhere, or you have a more conservative focus on productivity gains or extending existing processes, each has different levels of cost, risk, variability and strategic impact.”
Gartner says its research indicates GenAI requires a higher tolerance for indirect, future financial investment criteria versus immediate return on investment (ROI).
“Historically, many CFOs have not been comfortable with investing today for indirect value in the future. This reluctance can skew investment allocation to tactical versus strategic outcomes.”
“Earlier adopters across industries and business processes are reporting a range of business improvements that vary by use case, job type and skill level of the worker. According to a recent Gartner survey, respondents reported 15.8% revenue increase, 15.2% cost savings and 22.6% productivity improvement on average.”
“This data serves as a valuable reference point for assessing the business value derived from GenAI business model innovation,” says Sallam.
“But it’s important to acknowledge the challenges in estimating that value, as benefits are very company, use case, role and workforce specific. Often, the impact may not be immediately evident and may materialise over time. However, this delay doesn’t diminish the potential benefits.”
“By analysing the business value and the total costs of GenAI business model innovation, organisations can establish the direct ROI and future value impact, the Gartner report says.
“This serves as a crucial tool for making informed investment decisions about GenAI business model innovation.”
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