Why Responsible Software Spending

4 min read Indus Khaitan

The numbers are in and they are telling many stories. 

In the first scenario, the US GDP has contracted 4.8% signaling a recession, and unemployment rates have already crossed 20% [1]. IDC expects IT spending to contract by 2.7% [2] in 2020. In the physical world, economic and social activities have slowed down.  

Whereas, in the second, millions of users are being added and there is a surge as never seen before in cloud SaaS use. In fact, video conferencing apps had their biggest surge ever in March [3]. Though media has extensively profiled Zoom, even its competitor Google Meet was downloaded 30 times more in the U.S. than the weekly average during the last quarter in 2019.  

Software is eating the world as never before and we are eating software like never before.  

This post is about what responsible spending for software and SaaS could mean in the 2020s, why it is needed, and the problems it could address for both software buyers and sellers. 

2020s Software and 1930s Electricity

We are in a new decade that faces many geo-political, health, and environmental fault lines. We are also in a decade in which “digital transformation” has naturally accelerated across every industry, role, and workflow. While digital transformation involves many layers, SaaS can be the X factor that turns every company into a digital enterprise to power survival and growth. 

Just as electricity did in the 1930s and 1940s in America [4]. Although most American towns and cities had electricity by 1930, only 10% of Americans in farms and rural areas did. Because of market interventions and that of President Roosevelt, by the time of WWII and in the 1950s, much of America was electrified, powering the great post-WWII American boom.  

Just as the adoption of electricity became both de facto and de rigueur in the last 70 years, software could become as ubiquitous and powerful in the next few decades.

Buyer perceptions and the emerging trust deficit with SaaS

Once electricity was metered and deployed with 24/7 trusted measurement, the game changed. From rural China to semi-urban Bavaria to urban Canada, we all had common units of consumption. When you get an electricity bill it is not just the dollars that you owe to the service provider, but cost broken down under various line items: generation, transmission, distribution, franchise fees paid to local municipalities, recovery charges for subsidized electricity programs. 

For software to be embraced and adopted as much as electricity did, its value needs to be clear to buyers. If the value cannot be assessed then you need to know the cost calculation better. 

Wait, you ask. Isn’t this clear for buyers of software? For example, don’t CRM or Support or Collaboration tools to improve win rates, reduce churn, and improve productivity by double-digit %? This is where you see a major issue: buyers and sellers don’t appear to see value in the same way. Though SaaS spending crossed $100B in 2019 [5], this fault line has gotten worse. 

The buyer trust deficit extends to many areas. For e.g. in sales and marketing. G2 Crowd recently shared statistics that only 6% of buyers trust sales teams they deal with and only 7% trust explicit marketing content such as websites. In fact, in our internal research, we found that 40% of the Top 100 SaaS vendors don’t even have pricing information on their websites! 

What started off as buyer nirvana of “pay only what you use” wasn’t really implemented in practice by sellers. In fact, a majority of large enterprises are now locked into multi-year, multi-million dollar contracts just as they were in the days of on-premise software.  e.g. Salesforce’s smallest top 10 customer in FY 19 spent $34M and its biggest spent $79M [6]. In fact, Paycor’s research [7] showed spend as the #2 issue for CFOs, and anecdotally most CFOs we talk to report spending as their #1 issue. Buyers also tell us that vendors have forced them into long term contracts with annual hikes, plan changes, and even forced grandfathering. 

Thus, for buyers, the new SaaS feels a lot like the old on-premise. Instead of dealing with a rigid contract with a giant monopoly BigCo (e.g. Oracle or AT&T), now buyers wrangle with dozens of contracts with baby BigCos.

Shifting SaaS to a Responsible Spending paradigm 

Just like in our personal lives, in our work and business lives, we want transparency and choice and balance. SaaS in its truest sense should enable all this with nuanced visible pricing, modular workflows designed around personas, and the ability to pay elastically. 

Just as responsible eating involves balancing taste with nutrition, responsible SaaS involves balancing utility with cost. Just as responsible eating involves eating just the right amounts, responsible SaaS involves buying what you need when you need it versus over buying. 

Beyond just the recent surge in videoconferencing, the SaaS industry has a responsibility in this decade to be the connective tissue between sellers and buyers, and also to users and investors. 

We see this paradigm of responsible spending as having three pillars: mindset and behaviors, integrated measurement, stakeholder engagement.

Mindset and Behaviors

If the 2000s were the age of early enterprise IT, and the 2010s the age of BYOD, the 2020s is the age of digital abundance. Employees, IT, and Finance have to embrace a new mindset of responsible consumption in this abundance. Today,  employees mainly care about best-of-breed products that amplify productivity, while Finance and IT mainly focus on compliance and safety. Instead, in a responsible spending paradigm, employees need to care more about things like “free trials” creep and insecure apps, whereas Finance and IT need to recalibrate procurement requirements to favor vendors with robust roadmaps and more stable financials.

Integrated Measurement 

Too many approaches to SaaS and software spending focus only on Visibility or Utilization or Spend. An integrated measurement approach integrates these into one framework for total SaaS management. With such a baseline, future SaaS purchases and value can be evaluated better. An integrated measurement should also include a time-series approach to the problem, with a longer view of SaaS in a company versus just looking at a snapshot of a given year. 

Stakeholder Alignment

Finally, in the era of integrated Go-to-Market teams and Product teams, a new relationship is needed between the CEO, CFO, CIO, and the business. Today, the buyer function e.g. CEOs and CFOs doesn’t often have the same view of how software and SaaS drives business value (versus keeps the lights on). In addition, enabling functions like Finance and IT can align better with what-if scenario models to help the C-level make optimal spending decisions. End users, who are the tip of the spear of actual usage, are also best placed to help enablers and buyers help improve their daily workflow and focus on their primary work. 

Conclusion

While consumption of best of the breed technology products increases efficiency, ad hoc purchases lead to underutilization, data sprawl, and risks. At Quolum, we believe that with a responsible and sustainable spending approach, both buyers and sellers can make the 2020s the most ubiquitous era of SaaS and software adoption.

References

[1] Unemployment soars past 20%, Fortune

[2] Worldwide IT spending to decline by 2.7% in 2020, IDC

[3] Videoconferencing apps saw 62M downloads during one week in March, Techcrunch

[4] Before there were lights: A history of electricity in the U.S.

[5] SaaS spending hits $100 billion, Synergy Research

[6] Investor day presentation at 2019 Dreamforce, Salesforce

[7] CFOs’ biggest challenges in 2020, Paycor Research

Feature image: Specialist simulating the flow at an Air-Traffic Control Tower.