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Before the advent of cloud computing, organisations bought some software, installed it, and then ran it until they decided to upgrade to a newer version or move to a different product. If a software vendor went out of business it might mean that support would disappear, and this could be inconvenient if problems occurred, but generally speaking there was no immediate problem.
When cloud computing came along the commercial model for software changed. Subscription rather than outright purchase became the norm (Software as a Service / SaaS), which was great in terms of reducing upfront costs, but not so good if a software vendor closed down.
With software as a service, if a software vendor runs into problems, it’s entirely possible that the software they provide will simply stop working, potentially with little notice. Best case this could be inconvenient, worst case it could put companies using this software into crisis.
Just to complicate matters, what if a company didn’t know that one of its critical business processes was using software provided by a company that is going out of business? Again, unlikely back in the days when software was tightly controlled by the IT department, but since cloud computing “democratised” software, enabling any employee with a credit card to sign up for software (so-called “shadow IT”), quite possible now. Some software that is relied on for the smooth running of the business might only be visible as an annual expense claim.
Even if a cloud provider keeps trading when it runs into trouble, there can be other impacts for customers. The UK government has been hit with a multi-million pound bill following the collapse of the cloud services provider UKCloud. In the immediate aftermath of its collapse, some public sector cloud customers saw their cloud hosting bill rise seven-fold – from £50,000 a week to £350,000 in one example.
How likely is it that a key software vendor will get into trouble? Well, the Financial Times (paywalled) suggests that the failure rate for SaaS companies is 7 times what it was in 2019. The days of extremely low interest rates are over for now, and therefore so is plentiful funding. Companies that at one time would have managed to get another round of funding might no longer do so. Around 3,200 venture capital funded companies went out of business in 2023, and a high proportion of these will have been technology companies.
The general business environment in the UK appears challenging. The latest Red Flag Report from insolvency specialist Begbies Traynor highlighted that the number of companies in significant financial distress in Q3 of 2024 was 30% higher than it was in Q3 of 2023. The technology sector ranked 8th in the list of sectors with the most companies in significant financial distress, with 26,389 companies. The implication is that we’re going to see some software vendors run into financial trouble and disappear, and that’s going to be an unpleasant surprise for their customers.
There are other reasons why technology companies can go out of business, like cybercrime. CloudNordic, a long-established cloud computing company in Denmark, closed down after it was attacked by hackers. The company was unable (and unwilling) to pay the ransom demanded by the group that had hijacked its systems and destroyed all of its customers data, so it shut down.
Another reason software products can disappear is when a vendor is acquired. A recent example is OnTheMarket Software, the lettings software division of the property portal OnTheMarket. OnTheMarket was acquired in 2023 by CoStar, an American real estate data and technology company, and this month CoStar announced that it was closing OnTheMarket’s software division following a “strategic review”. At least in this case customers have been given until June 2025 to move to another software provider, but sometimes very little notice is given. For example, Blueboard, a provider of software to run employee reward programmes, closed down earlier this year without any notice, going straight into liquidation.
Generative AI tools like ChatGPT, Copilot, and Claude, are already being used in organisations at a significant rate. While analysts Forrester estimate that 60% of employees will use AI this year, the true scale of adoption of AI is hard to gauge. This is partly because things are moving so fast, and partly because currently AI tools lend themselves to being used informally by individual employees without any involvement from the IT function. So, as we covered in a recent blog post, AI is leading to a rapid expansion of shadow IT.
There are clearly short-term benefits from the adoption of AI – employees who create or have to refer to content and documents can reap immediate productivity gains. Where there may be trouble ahead is once the AI sector begins to mature and consolidate.
With all new technologies there’s a gold rush, with many entrepreneurs spotting an opportunity and piling in. AI is no different - according to company information vendor Tracxn, there are 83,000 companies worldwide working on AI, up from 67,000 a year ago. According to the UK government, there are 1,300 AI companies in the UK alone.
Many of these companies are startups, and as mentioned above, the likelihood is that many will fail. Indeed, the CEO of the major Chinese technology company Baidu recently likened the AI phenomenon we are seeing now to the dot-com bubble, and predicted only 1% of AI companies would survive and deliver value over the long term.
While it’s unlikely OpenAI, Microsoft, or Google will disappear any time soon, there is a plethora of small AI vendors who are tackling specific problems in particular industries, and it’s inevitable that many of these will not survive. Before they disappear though, many organisations may have become dependent on them, and if they are being used as part of shadow IT, that dependency is going to come as an unpleasant surprise when a vendor shuts down.
The first step in managing the risks around any of your cloud vendors going out of business is having a complete picture of who those vendors are.
Working with a partner like Costimised that has specialised tools and expertise can help you get that picture in a fast and cost-effective way. The bonus is once you’ve done that, you’ll probably find that even if none of your cloud vendors are going out of business any time soon, you’re probably spending 30% more than you should be with them, and Costimised can help you eliminate that overspend.
Contact us at enquiries@costimised.com to set up a no-obligation discovery call where we can explore the potential cost savings for your business.
We recently worked with a company that had been purchased out of administration. The main reason the company had gone into administration was that it couldn’t generate enough revenue to cover its Cloud costs. An extreme example, but most companies are overspending on cloud. The good news? This is a fixable problem.
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A number of factors are combining to make technology costs increase rapidly, and this is happening at a time when organisations are facing other cost pressures. We lay out what is going on to make software application and cloud services costs rise - including vendor actions, Shadow IT and the increasing use of AI, plus what you can do about it.
Read Full BlogOrganisations are increasingly dependent on technology, and most of that technology now lives in the cloud. Unlike on-premise software, if a cloud software vendor disappears, so can the software. How big a risk is this? What can you do about it?
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