By the end of 2025, at least 30% of generative AI (GenAI) projects will be discontinued after proof of concept, according to a recent report by research and consultancy firm Gartner Inc. The leading reasons for these project terminations include poor data quality, insufficient risk management, rising costs, and unclear business value.
According to Gartner, despite the significant hype surrounding GenAI in recent years, many executives are growing impatient with the slow return on investment. As organizations expand the scope of their AI initiatives, the financial burden of developing and deploying GenAI models has become increasingly apparent.
“After last year’s hype, executives are impatient to see returns on GenAI investments, yet organizations are struggling to prove and realize value,” said Rita Sallam, distinguished VP analyst at Gartner. “The financial burden of developing and deploying GenAI models is increasingly felt as the scope of initiatives widens.”
One of the major hurdles organizations face is justifying the substantial investment required for GenAI, especially when the productivity gains it promises are difficult to directly translate into financial benefits. Gartner’s analysis suggests that many businesses are using GenAI to transform their business models and create new opportunities. However, these strategies 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,” Sallam said. “What you spend, the use cases you invest in, and the deployment approaches you take, all determine the costs. Whether you are a market disruptor or have a more conservative focus, each has different levels of cost, risk, variability, and strategic impact.”
Gartner’s research highlights that achieving value from GenAI requires a higher tolerance for indirect, future financial investment, as opposed to immediate return on investment (ROI). Historically, many CFOs have been hesitant to invest in initiatives that promise indirect value in the future, preferring instead to allocate resources toward projects with more immediate and measurable returns.
Benefits of being an early adopter
Despite these challenges, some early adopters across various industries have reported positive outcomes. A recent Gartner survey of 822 business leaders found that, on average, organizations experienced a 15.8% increase in revenue, a 15.2% reduction in costs, and a 22.6% improvement in productivity after implementing GenAI.
“This data serves as a valuable reference point for assessing the business value derived from GenAI business model innovation,” Sallam said. “However, it is important to recognize the challenges in estimating that value, as benefits can vary widely depending on the company, use case, role, and workforce. The impact may not be immediately evident and could materialize over time, but this delay doesn’t diminish the potential benefits.”
To ensure successful outcomes, Gartner advises organizations to carefully analyze the business value and total costs of their GenAI initiatives. By doing so, companies can establish a clear understanding of the direct ROI and the future value impact of GenAI investments.
“If the business outcomes meet or exceed expectations, it presents an opportunity to expand investments by scaling GenAI innovation across a broader user base or implementing it in additional business divisions,” Sallam said.
Salam pointed out that if they fall short, it may be necessary to explore alternative innovation scenarios.