Cloudflare’s 2026 App Innovation Report reveals a widening divide between tech leaders and laggards—and AI is accelerating the separation.
The business world is splitting into two camps: companies that modernize their applications strategically, and those still stuck debating how to start. According to Cloudflare’s latest App Innovation Report, this gap isn’t just about technology—it’s reshaping which organizations will dominate the next decade.
The Winners Pull Further Ahead
The report surveyed over 2,350 organizational leaders worldwide and found that only 13% of companies are ahead of schedule with modernization efforts. But these “leaders” aren’t working harder—they’re working smarter. They’ve built agile decision-making structures where only a few people hold the reins, enabling quick action without bureaucratic delays. The payoff? These organizations are 76% more likely to see significant budget increases for modernization than lagging companies are.
AI: The Ultimate Litmus Test
Here’s where the gap becomes alarming: 93% of leading organizations say their modernization efforts have “very positively” impacted their AI capabilities, versus only 49% of laggards. Leaders aren’t just experimenting with AI—they’re integrating it deeply into revenue-generating applications and internal workflows. Meanwhile, companies behind schedule struggle with basic infrastructure needs, leaving them unable to capitalize on AI’s potential.
The difference boils down to foundation. Leaders have already invested in resilient, secure infrastructure that supports rapid AI deployment. Their competitors are still patching security holes and managing technical debt.
Security as Growth Engine
Contrary to conventional wisdom, leading organizations don’t view security as a barrier to innovation—they see it as an accelerator. 71% of leaders report that aligning security with modernization efforts is “very easy,” compared to just 32% of laggards. This alignment directly translates into AI success: organizations with strong security-modernization alignment are nearly 4 times more likely to have advanced AI capabilities.
The cost of getting this wrong is steep. While leaders have mastered efficient security event response, lagging organizations saw a 80% year-over-year increase in time spent addressing security incidents. That’s time and resources diverted from innovation.
The Developer Productivity Crisis
Perhaps most telling: 53% of leading organizations focus developer time on maintaining and improving existing systems, while 75% of laggards are stuck rebuilding from scratch. This paradox reveals everything. Leaders have stable foundations that they can refine. Laggards are in constant firefighting mode, reactively addressing compliance requirements and security breaches rather than innovating.
Implementation complexity affects everyone—46% of leaders and 38% of laggards cite it as a challenge—but leaders have the infrastructure to push through it.
The Bottom Line
The report’s message is clear: modernize comprehensively or risk irrelevance. The gap between leaders and laggards isn’t closing—it’s accelerating, driven by AI adoption, sophisticated cyber threats, and rising user expectations. Companies that fail to build a unified, secure, agile application infrastructure today will find themselves permanently outpaced by competitors who already have.
For organizations still on the fence, the urgency is undeniable. As the report concludes: modernize the entire stack—applications and infrastructure together—or risk being defined by those who already have.
