The full impact of recent tariff announcements and trade policy changes on the tech industry remains to be seen, but companies across the world have already begun adjusting strategies to account for the disruption. During times of economic uncertainty, price sensitivity rises and discretionary IT budgets are often first on the chopping block. IDC’s original 10% growth forecast for global IT spending is now likely to fall toward 5%, leaving independent software vendors (ISVs) searching for new ways to compete and show long-term value.
THE STRATEGIC IMPERATIVE: COST MANAGEMENT
In January, just 12% of CEOs planned on decreasing capital expenditures (CapEx) over the next year. Now, more than 40% say they will. It makes sense, since CapEx spend is normally reserved for future investments deemed less immediate than current operating expenses (OpEx). However, as IDC notes, IT has largely transitioned from a CapEx to an OpEx model in which a larger share of technology spending is viewed as essential to business operations. This reality opens a window for ISVs to pivot their value proposition from capability providers to cost optimizers.
According to McKinsey, 92% of companies plan to increase their AI investments over the next few years, illustrating that IT spending isn’t going away, it’s just being reallocated. That means ISVs have an opportunity to invest in AI and automation to accomplish two critical moves at once: (1) rebalance their own operational models to keep expenses low amid the ongoing trade war; and (2) position their offerings as AI-enabled cost-saving levers for companies undergoing digital transformations.
While there is significant concern over the uncertainty caused by tariff policies, most leading companies operate in longer-term cycles, and updating software capabilities remains a top priority for fast-tracking AI/GenAI tools, increasing data and analytics capabilities, and improving IT security. For ISVs, the task therefore becomes how to use AI to keep engineering or implementation/customization costs down, while also signaling to potential customers that their software is an AI-enabled OpEx investment instead of a discretionary IT CapEx cost.
KEY AREAS FOR AI-DRIVEN OPTIMIZATION
For ISVs to achieve any sort of operational cost reduction, processes will have to get leaner and more efficient. Thankfully, that’s just what AI/GenAI is designed to deliver. Here are five areas that ISVs can enhance with AI first to show the most ROI:
1. Compute Resource Management
Effective compute management means ensuring infrastructure is neither over-provisioned nor underutilized. AI and machine learning can analyze usage patterns and historical data to forecast demand, allowing predictive provisioning that minimizes downtime and improves efficiency.
2. GenAI for Code Refactoring
Refactoring improves code structure without changing its functionality. GenAI tools can assist developers by modernizing legacy code for cloud-native environments. These tools help identify inefficient code paths, improve readability, and simplify ongoing maintenance.
3. Automated QA and Testing
Strong quality assurance helps reduce bugs, cut development costs, and improve user satisfaction. However, fast release cycles often stretch resources thin. GenAI can generate test scripts, detect bugs by scanning system behavior, and free QA teams to focus on critical areas, ultimately speeding up delivery without compromising quality.
4. Intelligent Licensing and Usage Analytics
Understanding how customers use software can guide improvements, optimize licensing models, and uncover new revenue opportunities. AI-driven analytics offer real-time insights into usage patterns and market behavior, helping ISVs make smarter product decisions and renegotiate terms during periods of economic change.
5. AI-Accelerated Product Modernization
AI tools not only optimize back-end operations but also enable broader product transformation. ISVs can use AI to refactor monolithic architectures, adopt microservices, and create composable, cloud-native delivery models. It also supports adaptive user interfaces, modular design, and personalized features.
TYPICAL AI-INTEGRATION CHALLENGES & HOW TO AVOID THEM
Since every ISV operates differently, the first step toward AI integration should be identifying current inefficiencies. An internal audit of workload patterns can reveal where automation will have the most impact. With so much AI hype, it’s important to avoid unrealistic expectations. Integration takes time, and pilot programs within isolated domains are a practical way to start. Collaborating with finance teams to develop ROI models can help measure success and justify investment.
REWRITING THE ISV PLAYBOOK
Despite the current instability in global markets, a few things are inevitable: (1) the question of tariffs will (at some point) be settled, and (2) AI/GenAI capabilities will soon become table stakes across most industries. That means the time for action is now, and ISVs that ignore the benefits of AI in cost discussions risk not only their future relevance, but their future existence. Instead of waiting around to see what happens next with tariffs or technology, ISVs that proactively rebalance their workloads and start optimizing costs with AI will lead the next wave of resilient, agile tech providers.
