STATE & LOCAL GOVERNMENT GENAI MARKET

Dustin has led numerous cycles on market sizing related to GenAI and other advanced technologies in state and local government. Below is the latest market sizing research for GenAI in state and local government compiled by Dustin and team.

In response to the rapidly evolving technological landscape, US state and local governments are poised to significantly increase their investment in Generative AI technologies over the next four years. Projected to grow from a market size of $718 million to $1.44 billion in 2024 to between $13.29 billion and $16.61 billion by 2027, this strategic investment reflects an aggressive adoption trajectory. Outlined by the Center for Public Sector AI, the forecast distinguishes between standalone and embedded applications within IT budgets, highlighting a substantial annual growth rate. By 2027, Generative AI expenditures are expected to capture 8% to 10% of the total IT budget, demonstrating a significant shift towards these transformative technologies.

Standalone Generative AI

  • Definition: Standalone Generative AI applications function independently and are

    primarily dedicated to specific tasks or services. These do not require integration with other existing systems or software to operate. Examples include ChatGPT, Google Gemini, etc.

  • Adoption Characteristics: Standalone solutions are often adopted rapidly because they address specific, immediate needs and can be deployed without significant alterations to existing IT infrastructure. This allows organizations to leverage new capabilities quickly, particularly in areas where existing solutions are lacking or ineVicient.

  • Market Trend: The projection indicates initial strong growth in the standalone segment, driven by the clear, immediate returns on investment and the ability to rapidly deploy and realize benefits. However, growth is expected to stabilize as more integrated solutions become preferable due to their broader applicability and cost- eVectiveness.

    Embedded Generative AI

  • Definition: Embedded Generative AI applications are integrated into existing

    systems or software, enhancing their functionality.

  • Adoption Characteristics: Embedded solutions tend to have a slower initial

    adoption as they require more extensive integration and testing within existing frameworks. However, once these solutions prove their eVicacy and scalability, their adoption accelerates, driven by the ease of use and the seamless enhancement of existing functionalities.

  • Market Trend: The analysis expects the embedded Generative AI segment to grow significantly over time, surpassing standalone applications in market share. This growth is akin to the way cloud services have evolved, where initial investments in cloud infrastructure led to widespread adoption as secondary applications leveraged this infrastructure.

Generative AI Market Size Projections for US State and Local Governments (2024-2027)

This summarizes the projected Generative AI market sizes, their respective percentages of the overall IT budget, and the specific contributions of standalone and embedded technologies in US state and local governments from 2024 to 2027.

Assessment

In the assessment period (2024-2027), the market is anticipated to shift increasingly towards embedded Generative AI solutions. This shift reflects a broader trend towards technology integration, where the value of AI is maximized when it enhances existing tools and processes, rather than operating in isolation. This trend aligns with the strategic IT goals of many state and local governments, focusing on cost-eViciency, scalability, and comprehensive enhancement of services.

You can keep up with future market research on GenAI at the Center for Public Sector AI’s website.