The Rise of Enterprise AppGen and the Decline of Traditional SaaS Models
The enterprise software landscape is undergoing a fundamental structural correction, triggered by the maturation of large language models and the mainstreaming of AI-assisted development. According to Retool’s 2026 report, ‘The Build vs. Buy Shift: How Vibe Coding and Shadow IT Have Reshaped Enterprise Software,’ a survey of over 800 professionals reveals that 35% of teams have already replaced at least one SaaS tool with custom software. This data suggests that the recent market volatility surrounding Anthropic’s Claude update was not merely a fluctuation, but a signal that companies can now build custom tools in days rather than months.
This acceleration in development velocity is fundamentally altering the “build vs. buy” equation that has dominated IT procurement for two decades. While 78% of respondents expect to build more custom internal tools in 2026, the report highlights a critical lag in governance and measurement. As AI’s impact on the labor market demonstrates, technology replacement alone does not guarantee success without a corresponding shift in operational strategy.
Key Insights at a Glance
- SaaS Displacement: 35% of enterprises have replaced commercial SaaS applications with custom builds, impacting categories ranging from workflow automation to CRMs and BI tools.
- Shadow IT Expansion: 60% of respondents built software outside of IT oversight in the past year, with development speed significantly outpacing established procurement protocols.
- The Metric Gap: While 75% of builders work under an AI directive, 35% of organizations have yet to establish productivity metrics to measure the efficacy of these initiatives.
- Operational Velocity: 51% of builders have shipped production software currently in use, with half reporting time savings of six or more hours per week.
The SaaS Breaking Point: Why Procurement Cannot Keep Pace
For years, buying SaaS was the default because building software was resource-intensive and slow, but that logic is rapidly eroding. David Hsu, CEO of Retool, notes that the market is finally catching up to the reality that Enterprise AppGen is a threat to traditional SaaS models. Buying rigid SaaS today is like purchasing a pre-furnished house where you are forbidden from moving the sofa; eventually, the layout becomes an obstacle rather than a convenience. As Hsu argues, SaaS products force organizations to work within vendor constraints, whereas businesses that custom-build their value drivers gain a distinct competitive edge.
The pressure is mounting across every major software category. While internal admin tools and workflow automations lead the replacement list, core systems including CRMs, project management platforms, and customer support tools are facing growing risk. If a custom solution can be deployed in days rather than months, why continue paying premium subscription fees for software that ignores unique operational needs? This question is driving a massive reallocation of resources toward internal development.
Market Agitation: The Governance Gap in Vibe Coding
The democratization of coding—often referred to as “vibe coding”—has empowered builders but simultaneously created significant governance blind spots. The report identifies that 60% of professionals have built software outside IT oversight recently, with 25% doing so frequently. This rise in Shadow IT is not necessarily malicious; rather, it is a symptom of traditional governance processes failing to keep pace with the speed of AI-assisted development.
Furthermore, while 91% of organizations report some level of AI automation maturity, true sophistication remains rare. Only 19% of respondents describe themselves as Advanced, while 72% remain at Basic or Intermediate stages. This discrepancy highlights that while the tools for rapid development are widespread, the frameworks to manage and measure them are still in their infancy.
Strategic Solution: Operationalizing the Custom Build
The transition from external vendors to internal AppGen platforms offers tangible ROI when executed correctly. Harmonic, a startup discovery platform, exemplifies this shift after hitting a breaking point with a third-party tool costing $20,000 annually. Miles Konstantin, Harmonic’s Head of Automation and Tooling, noted that vendor support was so slow that rebuilding the product internally was faster than waiting for a response.
This decision sparked a broader cultural shift within the organization. Harmonic now operates 33 internal apps connected to critical systems like Salesforce, Gong, and Slack, complete with built-in audit logs and role-based access. The default inquiry at Harmonic has shifted from “Which vendor should we use?” to “Why can’t we just build this in Retool?” This approach not only eliminated the $20,000 expense but also aligned their software stack precisely with their internal workflows.
Future Outlook: Governance as the New Competitive Moat
As we move into 2026, the primary challenge for enterprise leaders will shift from accessing AI technology to governing its output. With nearly four out of five professionals expecting to build more custom tools, organizations must urgently bridge the gap between “vibe coding” and rigorous IT oversight. The winners of this shift will be the companies that can institutionalize the speed of Shadow IT while establishing the metrics necessary to prove that custom software delivers superior value over legacy SaaS subscriptions.
About Retool
Retool is the leading enterprise AppGen platform, trusted by over 10,000 companies worldwide, including Amazon, Stripe, Brex, and Orangetheory Fitness. Using Retool, developers and builders deploy sophisticated apps, automations, and agents dramatically faster without sacrificing quality or control, combining powerful building blocks with the flexibility of custom code. The company lets teams select the optimal AI capabilities for each use case while maintaining enterprise-grade security and scalability. Developers and domain experts have automated over 100 million hours of work by building sophisticated applications and AI agents dramatically faster with our platform. To learn more, visit https://retool.com.
