This article has been co-authored with Dusan Omercevic, CEO & Founder of Cleanshelf
New research4 indicates that SaaS spending is topping $13k per employee per year. Of that spend, around $4k is wasted. This article outlines how strong stakeholder relationships and leveraging insights provided by SaaS Subscription Management tools can cut wastage through optimising SaaS usage, functional standardisation, and data-driven vendor management.
Software-as-a-Service (SaaS) growth continues apace. The numbers speak for themselves:
- Microsoft adds 3 million active Office 365 users every month.1
- Adobe net income doubled in the six years following the switch to the Creative Cloud subscription model.2
- Salesforce revenue & revenue growth looks like this:3
For me, the question these figures pose is, who is driving it? The answer is that our organisations are, and in part due to the complexities of managing SaaS spending.
It is estimated that, in the US at least, SaaS spending is topping $13k per employee per annum.4 Over one thousand dollars a month? Did we ever spend that on “traditional” IT? Of that $13k per employee the broad consensus is that 30-35% is wasted – around $4000 per user per year.
What the rise of SaaS means for CIOs
The growth in SaaS usage fundamentally impacts the role IT plays. There are two dimensions to this. Firstly, there is an erosion of control over technology budgets. Secondly, there is also an erosion of control over the technology stack. Traditional, often monolithic, IT departments sought to define the technology stack for their organisations and were usually the custodian of the budget. This alignment between delivery and cost enabled multi-year deals to be struck for provision of a predictable, reliable technology landscape. Ideally, we knew what we owned, we knew who used it, and we knew how much it cost – particularly if we had a strong ITAM function.
For their internal customers though, IT departments were often seen as being slow to respond to business needs. This drove those business departments to source their own IT. Salesforce, 2nd only to Microsoft in SaaS revenues,5 have always primarily sold direct to their product’s end-users, not IT. Many Salesforce relationships started via a Sales Manager’s expense account or credit card.
So, departments acquire SaaS solutions without IT involvement, pay for them on departmental budgets, or via expenses, and yet still expect IT to step in and provide support when things go wrong. They may also expect IT to provide the budget, once those solutions become part of the fabric of the organisation’s IT, because that was how it was done in the good old days of central IT.
This presents a problem for modern IT functions. Departments increasingly assume the role of defining, deploying, and operating technology for their own benefit. IT is still expected to continue to govern and sometimes pay for the technology the departments select. Governance without control is problematic, particularly for an IT department that might also be seeing its budget and headcount reduced by the rise of Departmental IT.
Increasing regulatory and legal pressures, in the form of PCI-DSS, the GDPR, and industry-specific requirements such as HIPAA require technical solutions, delivered by central IT. The problem with this is that IT has very limited control over a SaaS application. If a security flaw exists which results in a personal data breach, it will be your organisation that gets hit with the fine, not the SaaS provider.
Furthermore, regulatory risk might not just arise due to a security flaw. SaaS applications enable employees to stitch together essential business processes without the usual oversight from IT, Legal, & Security. For example, a Customer Service team might improve efficiency by using a SaaS workflow tool to handle customer queries, storing sensitive personal information in cloud services, without considering the impact.
With IT’s emerging role as a technology governor comes the need for new tools and processes. Attempting to get to grips with Shadow IT by bringing it back under central control isn’t going to work. That’s how we got here in the first place. You don’t need to own the technology to manage it, you just need to be able to see it.
Do this by gathering metrics on usage and cost and looking for opportunities to optimise on the dimensions of spend, functionality, and usage. Build an estate-wide view, enabled by technology and strong stakeholder relationships.
Start with the stakeholders. Work with departments to identify their technology needs and what they’re currently doing to address those needs. Build a picture of the technologies used across the organisation.
Your teams may find that a tool is required to help manage this, and more importantly take action on the insights they discover. Existing IT Asset Management and IT Service Management toolsets won’t necessarily provide the detailed information needed to fully manage SaaS. Uncovering SaaS usage without dedicated tools is challenging. Often nothing is installed, and the contract hasn’t gone through existing IT Procurement processes. Dedicated SaaS Subscription Management tools use new techniques to address this discovery challenge by, for example, connecting to expense and accounting systems, or integrating directly into SaaS application management portals.
Use of such tools, in conjunction with strong stakeholder relationships, will provide the opportunity to deliver the $4000 per user annual cost saving highlighted at the start of this article. The three cost-saving pillars are Subscription Utilisation Optimisation, Standardisation, and Data-Driven Vendor Management.
Subscription Utilisation Optimisation
Of the 30% annual wastage of SaaS spend, around half – that’s $2000 per user per annum – can be attributed to unused subscriptions.
If Marketing have a Salesforce contract, do they have spare subscriptions that could fulfil demand created by an increase in Customer Service staff? If there are multiple Salesforce contracts running alongside each other, is there an opportunity to consolidate those into a longer-term deal? Traditional IT sought to co-term contracts for perpetually-licensed software and strike long-term deals over 3 or even 5 years. This is still possible in a SaaS-first technology strategy. If we are committed to Salesforce for the foreseeable future, why are we still buying it annually?
Next in line is elimination of redundant or overlapping services. For every functional requirement there are invariably multiple SaaS providers providing a solution. You may find that your organisation is using Webex, GoToMeeting, and Zoom for web-conferencing. How much could you save by standardising on one solution company-wide? The frictionless nature of SaaS means users are not wedded to their technology stack – it’s easy to switch. So easy that you can expect application turnover of over 30% per year – unheard of even 5 years ago 6.
Addressing duplication through standardisation will trim a further 25% – $1000 per user per annum – off your SaaS Wastage.4
Data-Driven Vendor Management
So far, reallocating unused accounts and de-duplicating services has clawed back around 75% of your SaaS wastage. That’s around $3000 per employee per year. The final 25% comes from driving a hard bargain with SaaS providers.
There are two approaches here. The first is straightforward – look at the usage of an application and make an accurate annual commitment, just as you would do for perpetually-licensed software. A typical saving will be in the range of 15-20% – that’s automatic, no negotiation required.7
But, just as with a traditional publisher, there is still room for Procurement to drive cost savings. Leverage strong stakeholder relationships along with the rich data gathered by a SaaS Subscription Optimisation tool. Combining full visibility of subscription usage, which of a provider’s competitors are also in use, and your employees’ view of their service, provides a strong base for negotiation. Price benchmarking also has a role to play.
This article has explored how CIOs can optimise technology spend and utilisation taking place outside their direct control. IT could deliver savings of $4000 per user per year by working with stakeholders and utilising new technologies to shine a light on SaaS Subscription spending across their organisation. This is accomplished through usage optimisation, standardisation, and data-driven negotiation.
About the Authors
AJ Witt is an analyst for The ITAM Review, specialising is the SaaS Subscription Optimisation & Management market. Prior to joining The ITAM Review he was the IT Asset Manager for the UK subsidiaries of Carnival Cruise Lines.
Dusan Omercevic is CEO and founder of Cleanshelf – a solution to track, optimize, and benchmark your cloud software subscriptions. Dusan has 25 years of experience developing cutting edge SaaS products and AI/ML based technology. Before founding Cleanshelf he headed product development and engineering at Zemanta and Najdi.si respectively, and led several large software development projects. Dusan holds M.Sc. in Computer Vision from University of Ljubljana.
- Office 365 Soars to 155 Million Active Users. Petri. October 2018. https://www.petri.com/office-365-soars-155-million-active-users. Accessed August 15, 2019.
- Adobe Inc. In: Wikipedia. ; 2019. https://en.wikipedia.org/wiki/Adobe_Inc.#Finances. Accessed August 15, 2019.
- Salesforce.com. In: Wikipedia. ; 2019. https://en.wikipedia.org/wiki/Salesforce.com#Finances. Accessed August 15, 2019.
- The State of Business’ SaaS Spend 2019 | Cleanshelf. Cleanshelf | The System of Record for Your Cloud Apps. https://www.cleanshelf.com/resources/2019/08/13/the-state-of-business-saas-spend-2019/. Accessed August 16, 2019.
- Enterprise SaaS revenue hits $100B run rate, led by Microsoft and Salesforce. TechCrunch. http://social.techcrunch.com/2019/06/28/synergy-research-finds-enterprise-saas-revenue-hits-100b-run-rate-led-by-microsoft-salesforce/. Accessed August 16, 2019.
- Witt A. Frictionless SaaS – Trends for 2019. ITAM Rev. March 2019. https://www.itassetmanagement.net/2019/03/13/frictionless-saas-trends-for-2019/. Accessed August 15, 2019.
- Slack. Pricing. Slack. https://slack.com/intl/en-gb/pricing. Accessed August 16, 2019.