Narayan AmmachchiAfter two years of sluggish growth, demand for custom software is finally showing signs of revival, driven by entrepreneurs’ push to adopt AI and the unavoidable need to modernise legacy IT systems.
A Grand View Research report estimates the global custom software development market will expand at a 22.6% CAGR between 2025 and 2030.
Much of this demand is coming from entrepreneurs trying to embed AI into their operations, said Marcos Mauro, Executive Vice President, LATAM Business at DataArt.
A growing majority of enterprises now recognise that they cannot automate core business processes unless they first clean their data and replace outdated platforms, including ERP systems. Until a few years ago, “IT was mostly about efficiency and keeping costs under control. Now it is much more about whether the organization can keep up and adapt,” Mauro added.
As companies attempted to deploy AI, they discovered that standalone automation tools fall short. They are now seeking systems that can integrate AI, manage massive data volumes, and adapt rapidly to changing needs. This shift is opening fresh opportunities for custom software developers.
Replacing old systems has become unavoidable, said Thomas Anglero, an AI and Robotics expert at Anglero.com.
Many of these platforms are more than two decades old and, in several cases, “the people or the company that wrote the code, the source code, the applications are no longer living.” The urgency is especially visible in healthcare and finance, sectors that face close government scrutiny, said Patrick Calder, Marketing Director at Distillery, a nearshore software development firm.
“Strict regulatory requirements create high switching costs, making customised software essential not only for compliance but also for maintaining long-term client relationships.”
Still, analysts caution that demand for tailored digital solutions may not surge overnight.
“Most organizations are not throwing away legacy systems overnight. That almost never works. What we usually see is a step-by-step approach. Companies add digital layers, APIs, and orchestration on top of what they already have so they can move faster without breaking critical systems,” Mauro added.
Custom software development ranges from building applications from scratch to modifying existing programs to address specific needs, such as streamlining supply chains or personalizing customer experiences. The global market was valued at $53 billion in 2025, according to Grand View Research, and is projected to grow at a 22.7% compound annual rate to reach $334 billion by 2034.
Services Providers are Not Gaining
Despite rising demand, analysts say the trend will not automatically translate into stronger balance sheets for IT services providers. Enterprise software accounts for about 60% of the custom software market, with large IT vendors controlling more than 60% of total revenue. At the same time, AI has simplified software development itself, reducing the need for large teams of developers.
AI is taking on a far bigger role in development, with estimates suggesting that 70% to 90% of tasks could be AI-driven within the next two years. Some firms are now building internal tools using AI and code assistants at much faster speeds, cutting their dependence on external developers for simpler work.
Low-code and no-code platforms are also replacing bespoke builds for many routine internal applications, while some buyers are opting for SaaS or configurable platforms instead of fully custom solutions.
AI and cloud computing have reshaped how companies approach software creation, Mauro noted. “Things that used to take huge budgets and long timelines are now much more achievable.” As a result, even as IT spending rises, services providers are not significantly expanding their teams.
Under the traditional model, service providers billed clients based on headcount and hours worked. Now, developers’ hourly rates are falling by 9% to 16% across several regions, according to Accelerance’s Global Software Outsourcing Trends and Rates Guide. Tasks that once required 100 people over 12 months are increasingly being completed by fewer than 10 people in roughly half the time.
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