Menlo Ventures’ 2024 State of Generative AI Report Reveals 6x Spike in Enterprise Spending as Market Leaders Shift

November 20, 2024 at 14:30 PM EST

MENLO PARK, Calif., Nov. 20, 2024 (GLOBE NEWSWIRE) -- Menlo Ventures, a leading venture capital firm investing at the forefront of AI, released its second annual State of Generative AI in the Enterprise report today. The research reveals enterprise spending on generative AI surged more than 6x in 2024, jumping from $2.3 billion to $13.8 billion as businesses made a decisive shift from AI experimentation to implementation.

The comprehensive report, based on a survey of 600 enterprise IT decision-makers from companies with 50 or more employees, shows that while optimism around the transformative potential for generative AI is high—72% of decision-makers expect broader adoption in the near term—enterprises remain focused on identifying high-value use cases, signaling we are still in the early stages of a large-scale transformation.

“2024 marks the year that generative AI became a mission-critical imperative for the enterprise,” said Joff Redfern, Partner at Menlo Ventures. “The numbers tell a dramatic story of organizations moving beyond pilots to embedding AI at the core of their business strategies. This transition creates massive opportunities for startups to deliver solutions that drive real business value.”

Key findings include:

Application Layer Explosion: Investment in AI-native applications reached $4.6 billion in 2024, an almost 8x increase from $600 million in 2023, with enterprises deploying multiple solutions across departments
Vertical Markets Leading Adoption: Healthcare emerges as the leading vertical with $500 million in spending, followed by legal services ($350 million), and then financial services, and media/entertainment (each at $100 million)
Market Share Shifts: OpenAI’s enterprise market share declined from 50% to 34%, while Anthropic doubled its presence from 12% to 24%. Organizations typically deploy three or more foundation models, indicating a strategic multi-model approach
Transformation Hits Every Department: Technical teams lead spending (IT 22%, Product 19%, Data Science 8%), followed by customer-facing functions (Support 9%, Sales 8%, Marketing 7%) and operations (HR and Finance 7% each)
Infrastructure Evolution: RAG (retrieval-augmented generation) adoption surged from 31% to 51% year over year, while emerging vector database solutions like Pinecone (18% market share) compete with traditional databases like Postgres (15%) and MongoDB (14%)

“Our market research captured a big power shift among the leading LLMs: OpenAI’s enterprise market share fell sharply from 50% to 34%, while Anthropic doubled its share, climbing from 12% to 24%,” said Tim Tully, Partner at Menlo Ventures. Across the rest of the stack, the research finds the industry converging on a common playbook: Enterprises are taking a pragmatic approach, consolidating around a handful of standard components employing an average of three different foundation models and switching between them based on the task. While debates over open- versus closed-source models persist, the data shows a clear preference, with closed-source models accounting for 81% of usage. “With foundational infrastructure in place, enterprises can now shift their focus to the application layer, driving innovation and competition in real-world use cases. We expect to see the true value of AI emerge—transforming industries and unlocking entirely new markets,” Tully explains. “Menlo will be at the forefront of this shift, backing visionary founders who are building breakthrough AI-native applications to drive the next wave of AI innovation.”

With early evidence of AI-driving enterprise transformation, the firm predicts more shifts in market leadership. “What we’re seeing goes beyond implementation—it’s disruption,” said Derek Xiao, an investor at Menlo Ventures. “In 2023, we reported that incumbents were keeping startups at bay, but in 2024, we saw Chegg lose 85% of its market cap to ChatGPT and StackOverflow lose half its traffic to GitHub Copilot. These aren’t isolated incidents—they’re early indicators that established leaders are vulnerable. When startups deliver superior AI-powered experiences, customers switch fast. We will soon see similar disruptions across healthcare, financial services, and other sectors where incumbents have grown complacent.”

For the complete 2024 State of Generative AI in the Enterprise report and Menlo Ventures’ three predictions for what lies ahead, visit: https://menlovc.com/2024-the-state-of-generative-ai-in-the-enterprise/

About Menlo Ventures
Menlo Ventures is a leading early-stage venture capital firm investing at the forefront of AI. Our portfolio includes more than 80 public companies and more than 165 exits through mergers and acquisitions. Currently managing more than $6B in assets, we invest at every stage across Consumer, Enterprise, and Healthcare. Our portfolio companies include Abnormal Security, Anthropic, Benchling, Carta, Chime, Harness, Pinecone, Poshmark, Pillpack, Recursion, Roku, Rover, Siri, Typeface, Uber, and Warby Parker. We strive to have a positive impact on everything we do. When we're in, we're ALL IN, and we are ALL IN on AI.

Media Contact
For more information or to schedule an interview with one of the report authors, Tim Tully, Joff Redfern, and Derek Xiao, please contact menlo@nectarpr.com.

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