The next phase of GenAI: ISVs and cloud providers at the center

GenAI is reshaping the cloud landscape, but many enterprise projects remain stuck at the proof-of-concept stage. Independent software vendors (ISVs) are emerging as the bridge to scalable adoption, yet they face technical and commercial hurdles. This blog examines the challenges they encounter, the unique approaches of cloud providers, and the transition from pilots to production.

How are independent software vendors working with cloud providers to bring AI solutions to market?

Generative AI (GenAI) has unleashed a global wave of innovation, but the path to scale is uneven. Hyperscalers have placed AI foundation models at the center of their strategies, and Agentic AI - autonomous agents capable of reasoning, planning and acting - has already emerged as a new growth vector. To support this shift, hyperscalers are rolling out dedicated frameworks and accelerating multi-billion-dollar data center expansions worldwide. 

Yet despite this momentum, adoption remains nascent. Omdia research shows that more than 60% of GenAI initiatives are still stuck at the proof-of-concept stage, with production deployments highly selective. High compute costs, integration challenges, and a scarcity of talent are slowing the transition from experimentation to scaled deployment. 

Independent software vendors (ISVs) are emerging as key partners to help close this gap. By 2028, Omdia forecasts that GenAI will generate US$158.6 billion in new opportunities for partners, with ISVs among the best positioned to capture this growth. Asia Pacific is already a proving ground, where hyperscaler build-outs are accelerating and Chinese ISVs are taking their first steps into international expansion.

The numbers underscore this momentum. The global GenAI software market is projected to grow from US$26.3 billion in 2025 to US$101.3 billion in 2029, at a CAGR of 48.1%. Asia Pacific is even faster, climbing from US$6.4 billion to US$27.6 billion over the same period, with a CAGR of 52.3%. For Chinese ISVs, this rapid growth makes Southeast Asia a natural entry point for overseas expansion.

Structural barriers ISVs must overcome

The opportunity is compelling, but capturing it will not be straightforward. In this article, the focus is on ISVs that develop and sell application or platform software, for example, Snowflake or PingCAP, rather than providers of IaaS or PaaS infrastructure. The first barrier is high compute and integration costs: vendors must make significant upfront commitments to model selection, data preparation, and orchestration before markets are validated, often without certainty of a return. Even if products are built, talent constraints quickly surface, as lean engineering teams struggle to sustain continuous iteration and tool integration.

Those that push ahead then encounter trust and adoption hurdles. Many ISVs lack brand recognition, face unpredictable sales cycles, and, for those entering overseas markets, encounter compliance requirements and limited local visibility. Finally, monetization is uncertain. Pricing models remain immature, and many deployments are stuck as pilots or bespoke builds that cannot scale profitably. Too often, prototypes win headlines but not customers.

Distinct strategies from cloud providers

Cloud providers are adapting their playbooks to help ISVs overcome these barriers, though each follows a different strategy.

• AWS emphasizes modularity, combining tools like Bedrock, SageMaker and AgentCore with a mature Marketplace-driven commercialization path. 
• Microsoft Azure integrates AI tightly into enterprise suites, such as Microsoft 365 and Dynamics, enabling the embedding of AI features directly into workflows, though onboarding and incentive thresholds can be complex.
• Google Cloud takes an engineering-centric path, prioritizing flexibility and customization, but placing a greater burden on ISVs to self-scale.
• Alibaba Cloud enables Chinese local ecosystems with low-code tools like PAI Studio and ModelScope and provides resource grants, though its Marketplace ecosystem remains fragmented.

These differences matter. The right partner choice depends not only on technology, but also on whether providers can offer the go-to-market support ISVs need at different stages of their journey. AWS’s Marketplace is one example that, by combining procurement, billing and brand visibility, helps ISVs gain credibility and reach customers faster in new regions. The approach is especially valuable for Chinese ISVs beginning their international expansion, where brand recognition and compliance are bigger hurdles.

Four stages of ISV growth

Looking ahead, ISV growth in GenAI can be understood across four stages:

• AI ready - experimenting with APIs and demos to explore feasibility. At this stage, the focus is on simple, high-frequency use cases (like customer support automation) where value can be proven quickly.
• AI embedded - integrating GenAI into products and testing early pilots. Progress comes from refining a minimum viable product around clear value points and validating with honest customer feedback.
• AI native - embedding agentic capabilities such as orchestration and tool invocation. Success depends on gaining marketplace visibility and tapping into co-sell programs to accelerate trust and adoption.
• AI driven - scaling as ecosystem leaders with replicable solutions and international reach. The priority is deepening co-branding with cloud providers and leveraging expansion initiatives to break growth ceilings.

Most ISVs today remain in the first two phases, still searching for repeatable use cases and sustainable pricing models. But as they move toward commercialization, cloud providers that offer end-to-end support – from technical onboarding to sales expansion – will emerge as the most valuable partners.

By 2028, GenAI is expected to represent a US$158.6 billion opportunity for partners. Realizing this potential will depend on ISVs and cloud providers working side by side to co-create scalable solutions that enterprises can adopt with confidence. Only then will GenAI move beyond experimentation and become the foundation of a more resilient, value-driven AI economy.

To read more insights and analysis covering market trends and industry forecasts prepared by Omdia’s Channel practice, click here.

Download the report “Software vendors on the path to unlocking the power of GenAI” here