Q+A: How to stop your AI budget blowing out

Welcome to Fear and Greed Q&A, where we ask and answer questions about business, investing, economics, politics, and more. I'm Sean Aylmer. Australian businesses are spending more on artificial intelligence, but many are struggling to work out what they're actually getting for their money. New research from Elastic suggests one in three businesses exceeded their AI budget last financial year, Only 8% are tracking AI's contribution to revenue or cost savings. Despite that, half plan to increase their AI spend over the next 12 months. Jeremy Pell is Country Manager ANZ at Elastic. Great supporter of Fear and Greed. Jeremy, welcome to Fear and Greed Q&A.

Thanks, Sean. Great to be here.

I reckon that this is the ultimate question right now. What are we spending on and are we getting a return for it? So let's break that down. One in three businesses went over their AI budget last financial year, yet half are increasing spending. What's going on? That doesn't sound rational.

No, you're right. If you think about just how you would go and ask for money two years ago, you'd have to build quite a robust business case to say, I'm going to get this outcome off the back of it. But for some reason, all of those basic fundamentals have gone out the door with AI. It's spending more. It's not really linked to the business outcome yet. Yes, we're seeing some sort of benefits, but nowhere near the budgets that are increasing. So people are going over those budgets and They're continually spending and people are actually even throwing more money at it. And I think the biggest concern there is that the budgets aren't growing the same pace that the AI is growing. So unfortunately, some businesses have had to make that decision of how am I going to fund these AI initiatives? Where's it going to be coming from? So it's coming from different parts of the business to fund these AI strategies.

I wonder sometimes with these new technologies, whether that's just part of the life cycle of it. People do throw money at it and maybe you're not measuring it properly. Maybe you're not quite sure where it's going, but you kind of have to do it. Or is that not the case?

It is. If you aren't spending in AI, you're going to be left behind. So there is definitely an element of that. I also think that we're at the height of expectation of at the moment where people are now spending a whole bunch of money to try and keep up with it. And we'll start to see it plateau out as the cost of tokens and things come down. But also as it starts to measure the business outcomes and people can start to really attribute it to how the business is either saving money or growing revenue.

So attribution is a good one. The really striking number in research is that only 8% are tracking AI's contribution to revenue or cost savings. Is that a function of people kind of not making the effort or is it just too hard to do?

It's a bit of both really. Being able to manage a cost in an AI world is quite difficult. It's a lot to do with the data that you're putting inside these models. So how you're actually storing your data, how you're putting your data in there is the thing that is creeping up those costs. So