Ask The Analyst: What market forces are most aggressively disrupting legacy HR tech incumbents right now?

Every week for The Briefing, UNLEASH’s weekly intelligence email for senior decision-makers, we put the tough questions to the true HR experts: Our community of analysts.

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This week’s question: What market forces are most aggressively disrupting legacy HR tech incumbents right now?

Here are the thoughts of the HR analyst community:

Julia Bersin, Director, Research, The Josh Bersin Company

AI is disrupting the legacy HR tech market – and the pressure on incumbents is coming from multiple directions.

First, IT budgets are being diverted from traditional SaaS tools toward AI. The proliferation of AI-native platforms is therefore putting pressure on legacy vendors to modernize and build their own agents, while doing so on an old infrastructure is inherently challenging.

Second, the per-seat pricing model is under threat. As companies leverage agents to run processes, they need fewer licensed users in each tool. This saves the customer money but means that vendors need to rethink how they monetize (i.e. token usage, conversations, tickets, etc.)

Third is the rise of the citizen builder. With tools like Claude, Copilot and others, HR teams can now build and deploy agents without highly technical resources. Instead of purely evaluating vendors, organizations are asking, "Can we build it in-house?"

Lastly, AI has raised the bar around user-experience—particularly for employee-facing systems. Learning is a great example. AI-native platforms offer hyper-personalized, conversational learning experiences in the flow of work. These consumer-grade experiences are becoming an expectation among employees, and vendors that can't deliver them will be overshadowed by those that can.

Chris Havrilla, Chief Advisor & Analyst, AI Alchemists

I believe there are at least three major forces converging simultaneously and the incumbents built for a world where that couldn't happen.

First: agentic AI isn't just a feature upgrade, it's an architecture challenge. Legacy platforms were built around systems of record: data at rest, workflows locked in modules, value captured through switching costs...Agentic AI creates “systems of consequence” that need actual “consequence architecture” by buyers: dynamic, composable, able to decide and act across boundaries. Most incumbents can't get there from here without dismantling what made them dominant, much less helpful to buyers transitioning.

Second: capital markets have reset rules. The growth-at-all-costs era that funded suite expansion and “acquihire” defense is over. Incumbents are under margin pressure exactly when they need to invest most. Meanwhile, focused challengers are building with a fraction of the overhead.

Third (and most underestimated): buyer sophistication. Enterprise HR buyers finally know what they're not using. A decade of shelfware, failed implementations, and AI promises and pilots that didn’t land has produced a procurement posture that incumbents didn't model for: selective, skeptical, and increasingly composable-first.

None of these forces alone topples legacy players, but the three converging? Those are very different conversations I'm having with clients on both sides of table right now...architect consequences. Don't inherit them.

Rebecca Wettemann, CEO and Principal Analyst, Valoir

There’s no question that artificial intelligence (AI) is disrupting everything right now, but it’s AI’s downstream effects that are driving the most disruption of legacy HR vendors now, in four main areas:

Pricing. With AI-native competitors rewriting the cost curve, and saaspocalypse rumors driving software rationalization efforts, per-seat pricing and hefty implementation fees are being challenged by vendors with usage and value-based pricing and more flexible contracts.

Usability. AI’s conversational interface, and the expectation that HR apps will be as easy and intuitive to use as ChatGPT, make clunky legacy app interfaces more difficult to rationalize – and pay for.

Deployment. When AI can vibe code features and automate much of application configuration, the long deployment times and high switching costs melt and make migrations to more modern solutions less risky.

Skills. As C-level executives start to have more realistic conversations about AI, automation, and skills, they’re finding legacy HR systems can’t give them the kind of workforce data they need to do real workforce planning.

These HR tech challenges are also changing how HR professionals need to think about HR tech and HR data – as not just HR assets but business assets and AI infrastructure.

David Perring, Chief Insights Officer, Fosway Group

You might think that it’s all about AI. And we know from our Fosway HR Realities research that half of HR expects half of what they do today to be done by AI by 2030 and still be effective. But whilst AI and agentic workflows are all the rage and absorb all the debate, the reality is there is a more nuanced set of forces at play here.

What’s really disrupting HR tech incumbents is the quadruple whammy of cost, effectiveness, trust and AI. It’s not the tech, but the cost, value and integrity that are the real disruptors. Savvy buyers want to know: can I do more than I do today, at lower cost and with higher effectiveness (because of AI), and not end up in a lawsuit?

If the answer to that is a big YES – then incumbent HR tech will feel an aggressive squeeze. But that’s only if the value case and the advantages across the total cost of ownership are big enough to drive a change.

What that means is that there is still inertia in the HR tech market – because the real advantages in context are still often incomplete and the relative difference in effectiveness between different providers’ AI is unclear – and lawsuits are making buyers cautious. As a result, disruption is more likely to come from being able to do something genuinely new that wasn’t previously possible rather than from wholesale change.

But how long that will continue to be the case is unclear, and aggressive disruption is likely as the number of proof-points starts to create a true tipping-point, but for most buyers, for their core platform, I don’t believe we are there just yet - unless it’s driven by platform consolidation.

Jess Von Bank, Co-Founder, Now to Next

What's interesting is that incumbents aren't being disrupted by a better product. They're being disrupted by a pricing model that's breaking down and an architecture that can't evolve fast enough to save it.

The seat is the unit that's collapsing. Per-seat licensing assumed a human behind every login. Agents invalidate that assumption, and the market has already begun to reprice accordingly. This winter alone, we watched roughly $2 trillion in software market value evaporate in a matter of weeks.

Beneath that sits a second problem. The system of record was once the moat. Increasingly, it's becoming the constraint. Agentic AI doesn't bolt cleanly onto decades-old workflows, forms, approvals, and process architecture. Wrapping an agent around legacy software isn't reinvention – it's augmentation.

That's why AI-native challengers are attacking the stack from underneath while incumbents reclassify revenue as "AI ARR" and race to close the gap between procurement and deployment.

But the disruption I'm watching most closely isn't technological at all. The overwhelming majority of investment is going toward making existing processes run faster, not questioning whether those processes deserve to exist in the first place. We're not redesigning work. We're accelerating it.

In many cases, we're automating dysfunction at scale, complete with governance frameworks and budget approvals that make the exercise feel transformational. The winner won't be the company with the most agents. It will be the company that best understands how work itself needs to change. Because the real bottleneck isn't technical. It's organizational. It's human.

The next moat won't be software that automates yesterday's operating model. It will be software – and the organizations behind it – that can encode a fundamentally different one. A few incumbents are beginning to scratch at this idea. Whether they can get there before the economics and architecture catch up to them is one of the most interesting questions in enterprise software right now.