Why Are Software Costs Increasing?

A benefit of moving to Cloud software was meant to be reduced costs. It wasn’t presented as the only benefit, but it was always mentioned as one a key reason to get off on-premise software. Despite organisations moving to the Cloud, IT spend keeps stubbornly rising.

A recent Deloitte report suggests that organisations’ IT spend as a proportion of revenue almost doubled from 2016 to 2024.

Why is spend rising? Covid is partly to blame. McKinsey estimated the pandemic accelerated the adoption of digital technologies by 7 years. The need to support remote working and move physical interactions online drove a huge and rapid investment in IT. While some things have partially reverted to pre-pandemic norms, e.g., remote working, things that changed have generally stayed changed, so the technology purchased to support them continues to be needed.

Aside from that, new technologies appear that provide more ways that technology can be used to reduce costs or increase revenue, AI being the most notable recent example. A recent study by Moore Global suggested that the average investment in new AI initiatives is $1.5m. While AI is often adopted to reduce personnel or other non-IT costs, it is only going to have one effect on IT budgets.

So, a lot of the increase in spend is driven by necessity, or the benefits that the technology brings. A lot, but not all. There are other factors that are driving technology costs up.

Cloud, and especially Software as a Service, changed the way technology could be bought. Depending on how you view it, the ability of business users to buy software without having to engage with their IT function was either a revolution in empowerment or a recipe for anarchy. The true position is probably somewhere in between, but even if there are benefits in the “democratisation” of IT, there are some challenges, for example –  

• If nobody has overall control over what software is purchased, how do organisations ensure that the same or similar software isn’t purchased multiple times?

• Who’s making sure that software is being purchased in line with real business requirements, not gold-plated ones that result in software being deployed that has 70% more capability than is ever used? And that 70% won’t be free.

• When software is no longer being used, who is responsible for cancelling the subscription? Does it just auto-renew?

All of the above can lead to IT costs that are providing limited, or zero, value to the organisation. How big an issue is this? The generally quoted figure is that 30% of cloud software spend is wasted. For most organisations, that’s a significant amount of money.

So how do you get a sense of whether Cloud is providing value for money to your organisation? Costimised can help you identify where you can make savings on your software costs quickly and cost-effectively. Contact us today at enquiries@costimised.com and we’ll set up a no-obligation discovery call with you to assess the size of potential savings.  

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