4 Ways to Lessen the Impact of Software Price Hikes
A recent study by Vertice found SaaS price increases in the United States over the last five years were 3.5x greater than the general inflation rate. A report by Gartner® predicts SaaS costs will grow by 15-20% over the next two years. The news has been filled with announcements from prominent software vendors notifying customers and prospects about price increases. Many of these increases took effect January 1, 2023.
- IBM Passport Advantage® products: a “harmonization” of 8% worldwide with some unlucky exceptions
- Adjustment of SAP support fees of 3.3% for on-premises software offerings
- Oracle is set to increase support fees to align with global inflation
- Google Cloud Storage price increases, effective April 1, 2023
Organizations also saw price increases from vendors such as Microsoft and Adobe, which were justified by improved and new features. Adobe Acrobat saw an increase of 20% for perpetual licenses. Adobe Creative Cloud increased prices by 4-7%, while Microsoft increased prices on Microsoft® 365 by 9-25%, depending on the offering.
Adobe also increased prices by up to 40% on subscriptions in the Adobe Value Incentive Plan (VIP) (effective July 1, 2023). The amount of the price increase will vary depending on the specific plan, region, and size of any current commitments and discounts.
This news has understandably caused some frustration and concern among Adobe users, particularly those who rely heavily on the software at the enterprise level. However, it’s worth noting that Adobe has historically raised their prices every few years, and the company has stated that they will continue to offer a range of plans at different price points to accommodate different budgets and needs.
Microsoft announced in July 2023 a $30 per person fee for accessing its AI-powered Copilot service for businesses. The Wall Street Journal estimates the fee to be more than double what Microsoft currently charges for the least expensive version of Microsoft 365. Additionally, Microsoft plans to enhance its Microsoft 365 business offering by integrating the AI-powered chatbot, Bing Chat Enterprise, as an added feature. For non-subscribers, Microsoft has set a monthly charge of $5 per use to gain access to Bing Chat Enterprise.
Starting from August 2023, Salesforce has announced a price increase of approximately 9% for certain cloud and marketing tools. This marks their first price adjustment in seven years. The decision comes at a time where like Microsoft, the company is making significant investments to incorporate generative AI into their offerings. The revised prices will apply to Tableau, Sales Cloud, Service Cloud, Marketing Cloud, and Industries, impacting both existing and new customers alike.
Crises can reveal opportunities for better cost management
With the Covid-19 crisis, we experienced a lot of rapid technology innovation. Much of the spend for this innovation happened outside of traditional IT budgets, leading to application sprawl, waste and security concerns. According to the Snow Software 2021 IT Priorities Report, leaders said SaaS sprawl was their biggest concern around SaaS. In a recent survey on SaaS management priorities, we found identifying all SaaS usage in the organization was the second highest priority behind managing SaaS security.
A large portion of technology investments over the last two years have hit operating expenses. If your organization is looking for ways to save cash now, SaaS and IaaS costs are good places to start looking. You may also have upcoming maintenance renewals where you can see some savings by performing application rationalization if those products are rarely used. Here are some ideas where you can start identifying cost-savings opportunities.
1. Analyze application subscription data to understand the value you are receiving from contracts.
While it might be difficult to significantly reduce spend on an application your organization is heavily dependent on, you can prevent over-buying and have a better argument for reductions if you know the value you are or are not receiving from the software. Likewise, you can decide to not renew subscriptions with little-to-no use.
2. Look at alternatives and application redundancies.
Because SaaS applications are so easy to buy, it is very likely you have redundant applications used across your organization, or you may even have multiple agreements in place for the same applications across various business units. This scenario is extremely likely if your organization has multiple business units. To check for application redundancies, discover and inventory your installed and cloud-based applications. Then, run a report of all the applications in use by application type, and filter for applications requiring licenses. From there, you can see where there may be applications you can remove from your environment.
3. Find unused resources across your cloud infrastructure.
Cloud infrastructure can be used by various teams within your organization. Without tagging resources, and allocating costs, your organization won’t have visibility to determine if they are getting the value from these investments. By obtaining detailed usage metrics on cloud instances, your cloud infrastructure team can take action to right-size or eliminate cloud workloads.
4. Assess license configurations for datacenter applications.
For organizations with on-premises datacenters, software costs for applications in these environments can be significant.
For instance, Microsoft offers a huge choice of products and associated licenses for the datacenter. Due to the high license cost for these products, it is possible to create multiple configurations that achieve the same results from a technical perspective but are vastly different in price. Small changes can make big differences to compliance and financial exposure. Getting the structure optimized and maintained from a licensing perspective ensures significant cost savings.
Some software asset management tools give you visibility to how your licenses are currently configured, and provide recommendations to reduce your license costs and improve your compliance position.
As organizations are going through budget crises, now is an opportunity for IT leaders to re-think how technology is managed for their organizations to enable ongoing technology cost management and improve the organizations’ risk posture.
Learn more about Flexera solutions for optimizing technology spend.