INSIGHT

Top 2025 growth trends for software companies

by Jeffrey Hammond, Global Head of Worldwide ISV Product Management Transformation | 5 Feb 2025 | Thought Leadership

Overview

From creating AI products, to embracing software-as-a-service (SaaS), keeping up with the fast-paced dynamics of the software industry can be challenging. Decision-makers are always on the lookout for new ways to drive profitable growth and remain in line with the all-important Rule of 40—a concept that a company's combined growth rate and profit margin should be at least 40 percent. But that's easier said than done. Successful software companies drive profitable growth by balancing investments in three areas: product differentiation, top-line growth, and operational excellence. This article will explore the potential opportunities—and challenges—of each.

 

"Operating in an ever-changing industry like software compels you to act with agility."

 

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1. Product differentiation

Today, many of my conversations with chief product officers (CPOs) around product differentiation are focused on one technology—generative AI. Forthcoming Forrester research (full study data coming mid February 2025) reveals that, while software companies are enthusiastic about generative AI, they often lack the strategies needed to drive profitable growth with it. The approach for many companies is inside-out, tech-centric, and lacks a clear understanding of the market and their customers’ needs.

Given a list of priorities, software and technology company decision-makers focused on generative AI strategy classified the following as critical:

  • Increasing brand awareness (39 percent)
  • Revenue growth (38 percent)
  • Cost reduction (34 percent)

This shows that most software companies are prioritizing the “what” of generative AI, when they should be focused on the “how,” such as:

  • Improving customer support (24 percent)
  • Delivering better experiences to users (23 percent)


The same research shows that only 31 percent of software companies are selling the value of their generative AI products on trust, transparency, and governance features. Neglecting regulatory compliance, data security, and IP ownership risks losing customer trust. This is particularly important when serving heavily regulated industries like government, finance, and healthcare.

Identify your opportunities by working backwards from customers

At Amazon Web Services, we see software companies investing in generative AI across two use case categories. The first is optimization in aid of improving operational excellence. Think about enabling customer self-service with natural language understanding, automating revenue operations (RevOps), generation of marketing content, personalized communications or synthetic test data, and generation of "executable artifacts" like code or calendar appointments.

The second category drives product differentiation by embedding AI into products. Examples of differentiated use cases include creating AI native products with intent-driven customer experience (CX), reducing customer toil by automating work, increasing the velocity of content development, generating executable artifacts with ease, lighting up "dark data" to empower customer creation, and more.

Both approaches can yield significant results but it’s important to first identify a customer (or employee) need that AI can address. Key areas to consider are:

  • Improving day-to-day product usage
  • Reducing onboarding time
  • Adding natural language capabilities
  • Increasing automation
  • Generating insights from data

Once you’ve identified an area to focus on, you’ll be in a stronger position to work backwards and build a product that meets your customers’ needs from day one.

 

2. Expanding top-line growth

Geographic expansion is a top priority for many software companies, but it can be challenging. You’ll encounter new competitors, customer demands, and regulatory requirements, often without enough experienced staff to facilitate a smooth market entry. If you’re facing the challenges of global expansion, consider seeking external expertise. Services like AWS Global Passport can help you accelerate entry into international markets and effectively respond to strategic, operational, technical, and go-to-market challenges.

Grow through acquisition

Another common tactic is to pursue growth through mergers and acquisitions (M&A). This can help you expand from a single product to a platform that solves more customer problems and that help sales teams target larger enterprise customers and sell at a more strategic level. But M&A success relies on a robust integration strategy. That goes beyond just technical factors like infrastructure, data, and user experience (UX). You’ll need to effectively bridge internal processes, administration, sales channels, and culture too.

Join a third-party marketplace

Acquiring new offerings is one thing, but could you be doing more with what you’ve already got? Joining a third-party cloud marketplace, such as AWS Marketplace, can expand your channels, accelerate co-sell opportunities and shorten the product acquisition cycle. You can also gain exposure to new markets. For example, software companies are increasingly targeting small and medium-sized businesses through third-party marketplaces.

 

3. Improving operational excellence

To quote, Melvin Conway: “Organizations, who design systems, are constrained to produce designs which are copies of the communication structures of these organizations.” How your organization communicates internally will influence the structure of the systems or products it creates. If your current structure limits collaboration between teams, any software they design is likely to reflect that lack of internal cohesion.

Eyeing a switch to SaaS?

Switching to a SaaS architecture can help you elevate the scalability, cost-efficiency, and security of your operations. But as I wrote in Forbes, “eating the fish” doesn’t happen overnight, and you’ll have to navigate a period of transition before you start reaping the rewards of SaaS. Before committing, it’s important to set expectations—and budgets—from the outset. C-suite and interdepartmental buy-in from day one will make that initial transition period a lot easier.

Increasing global resilience

Maintaining business continuity during unforeseen outages or cyberattacks is crucial for any software company but disaster recovery strategies vary. The more complicated the configuration, the lower your recovery point objective and recovery time objective will be, but that performance comes at a cost. In many cases, sensitivity around cost of goods sold determines what choice you’ll make.

 

How will you grow?

Investments in product differentiation, top-line growth, and operational excellence are profitable growth driver that every software company should explore. Operating in an ever-changing industry like software compels you to act with agility, and priority trade-offs between each area will shift during periods of technology disruption or financial uncertainty. Remember that every business is different, and it’s always worth taking the time to properly strategize before making a move. Learn more about what we offer to software and technology companies growing the cloud.

 

About the author

Jeffrey Hammond, Global Head of Worldwide ISV Product Management Transformation, AWS

Jeffrey Hammond helps software product management leaders leverage AWS cloud services to accelerate product delivery, create new revenue streams, reduce technical debt, and optimize operational costs.

Jeffrey Hammond, Global Head of Worldwide ISV Product Management Transformation, AWS