AI-native providers take 96% of enterprise AI coding spend, while incumbents hold 91% of IT, 88% of data science and 68% of HR, Menlo Ventures estimates in 2026: The State of Enterprise AI, published on 3 November. By our arithmetic, the five categories incumbents lead are worth about 8% of Menlo’s $77.3 billion AI application market.
Menlo says the report draws on a survey of nearly 400 U.S. enterprise decision-makers responsible for more than $4 billion in AI spending, fielded by Morning Consult from September 8 to 26, 2026. Its dollar figures are estimates of annualized run rate from “a bottoms-up model informed by survey responses, public filings, and third-party reports”. Menlo Ventures is an investor in Anthropic and in AI-native companies the report names, including Factory and Monaco.
Business Pill · Distribution Advantage
A short explainer on distribution advantage: why reach decides which products get tried. It teaches the general idea only and does not discuss Menlo’s report or any company in this piece.
The key insight: By our arithmetic, the five categories where Menlo Ventures says incumbents lead (IT, data science, HR, customer success and marketing) are worth $6.5 billion together, about 8% of the $77.3 billion AI application market, against $34 billion for coding alone.
The report’s summary of this section reads: “Distribution wins when AI enhances an existing workflow; capability wins when AI redefines it”.
It puts numbers on it: “Overall, AI-native providers now capture 77% of application-layer spend and 90% of infrastructure-layer spend, up from 63% and 44% last year”. And: “The lead isn’t just the frontier labs either; excluding them, startups still take 61% of application spend”.
Menlo says AI-native providers hold 96% of the $34 billion coding market, “including the labs’ own products (Claude Code, Codex) as well as independent companies like Cognition and Factory”.
On the incumbent: “Against incumbent GitHub Copilot, the challengers won largely through their product velocity—quickly translating model advances into products that moved from completing lines of code to building entire features”.
It adds that when Anthropic’s Opus 4.5 arrived in November 2025, Cognition’s and Factory’s systems for autonomous planning, execution and testing “were already in place to put its stronger capabilities to work”.
Menlo says incumbents keep their ground “where they are the system of record and AI has to fit into established workflows”, naming IT (ServiceNow, 91%), data science (Databricks and Snowflake, 88%) and HR (Workday, 68%).
Its chart adds customer success, where incumbents take 58% of a $2.7 billion market, and marketing, at 54% of $1.2 billion. Menlo says incumbents lead those five categories, worth $6.5 billion combined.
By our arithmetic, $6.5 billion is about 8% of the $77.3 billion application market, while coding alone is $34 billion. Menlo also says “we saw incumbents gain ground this year in nearly half of the categories we track”.
As we read Menlo’s numbers, the split runs along the system of record: where AI must sit inside ServiceNow, Workday or a data warehouse, incumbents keep most of the spend; where agents redo the work itself, as in coding, AI-natives take it.
As we read the report, the AI-native lead is not only the labs: Menlo says startups take 61% of application spend even with the labs’ own products excluded.
Menlo Ventures, 2026: The State of Enterprise AI
“Distribution wins when AI enhances an existing workflow; capability wins when AI redefines it”
Three Implications
FOR INCUMBENTS Menlo says incumbents gained ground in nearly half the categories it tracks, led by IT at 91%, data science at 88% and HR at 68%.
FOR AI-NATIVE STARTUPS Menlo puts AI-native providers at 77% of application spend and 90% of infrastructure spend, up from 63% and 44%.
FOR GITHUB COPILOT Menlo says challengers won coding largely through product velocity, and AI-natives hold 96% of the category.
The framework argues: “Enterprise vendors don’t sell software anymore—they sell irreversibility. The product is the interconnection.”
As we read it, Menlo’s category split matches that idea: incumbents keep the categories where they are the system of record, while AI-natives win where there is no such record to protect. The framework is the owner’s argument and does not discuss Menlo’s report.
The shares are Menlo’s estimates from its survey and market model, not revenue reported by GitHub, ServiceNow, Workday or the startups. Menlo counts the labs’ own apps as AI-native; the 61% figure excludes them.
Menlo’s chart marks each category’s 2025 startup share with an unlabelled dot, so year-on-year changes by category can only be read approximately. Menlo invests in Anthropic, Factory and Monaco.
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Menlo Ventures estimates that AI-native providers take 96% of AI coding spend and 77% of all application spend, while incumbents lead IT, data science, HR, customer success and marketing. By our arithmetic, those five incumbent-led categories add up to about 8% of the application market.
A note on sourcing. The figures, chart data and quotes come from Menlo Ventures’ report 2026: The State of Enterprise AI, published on 3 November 2026, and the charts shown are Menlo’s own. Menlo Ventures is an investor in Anthropic and in several companies named here. The one figure labelled our arithmetic is calculated from Menlo’s numbers. We did not contact Menlo or the companies named.
Gennaro Cuofano is a CRO and tech executive who has worked in AI since late 2015, starting with bringing NLP, natural-language generation, voice and chatbot products to the marketing industry. His background is in law and finance: he holds a Master's degree in Law and an International MBA with an emphasis on corporate finance (LUISS Business School and the University of San Diego, 2012), and worked as a financial analyst at a real-estate investment firm in San Diego and as an assistant controller. His work focuses on business model strategy, business engineering and, more broadly, structural analysis: how companies make money, read from their own filings. He created FourWeekMBA and leads research there and at The Business Engineer, his newsletter on AI and business strategy, with over 95,000 subscribers and more than 1,000 published analyses. His writing has also appeared on Entrepreneur (for example, How to Digitize a Family Business in Europe) and HackerNoon. Find him on LinkedIn and Substack. See how we source.
