4 minute read

Companies aren’t getting any less reliant on technology. While cloud computing was meant to lower IT costs, it’s not working out that way, and for many companies IT is a significant line item. For a variety of reasons, those costs are going to increase, so it’s important to take action to make sure that costs only increase as much as is absolutely necessary, and that cloud costs have the best possible ROI.

Cloud Computing

First off, let’s define cloud computing, or more specifically, what types of cloud services are commonly used by businesses. Here’s a few examples –

• Office productivity tools like Microsoft Office and Google Workplace

• Online file storage services like Dropbox and Microsoft OneDrive

• SaaS business applications like Salesforce and Adobe

• Cloud infrastructure services like Microsoft Azure and Amazon Web Services

• Artificial intelligence services like Chat-GPT and Claude

There is also a plethora of specialised cloud services in areas such as cybersecurity, software development and IT operations. The typical organisation has a multitude of cloud service subscriptions in place. For example, recent estimates on how many SaaS applications organisations have on average vary from 130 to 371. Now, given that’s such a wide range, these numbers have to be regarded with some caution, but they do demonstrate that the average organisation is likely to have a lot of SaaS applications being paid for. Note I said “being paid for”, not “being used”…

Shadow IT

It's also worth noting that organisations typically aren’t aware of all the cloud applications that they are using because of a phenomenon called Shadow IT. Cloud services can usually be accessed by anyone with a credit card, so employees don’t need to involve the IT function in order to start spending company money on software. That software is could be described as being out of sight, or in the shadows, and hence the term.

How Much???

It’s therefore not hard to see how cloud software can become a significant expense item.  In the UK, assuming £2,000 per employee per year, then that’s £1m annually, and there are some factors in play that are tending to increase the size of that item:

• Inflation – SaaS subscription increases at a higher rate than general levels of inflation. Estimates vary, but over the last year the range is between 8% and 11%. That also masks some much higher increases, e.g., Webflow put prices up by 23%.

• Shrinkflation – unsurprisingly, organisations have been pushing back on SaaS vendor price rises. One tactic vendors are using in response is to reduce the number of features included in a given level of subscription. The price of a subscription not going up is not good news if the company now has to subscribe to a higher - much more expensive - tier to access functionality they have been using.

• More users – The company is growing, great, but each new employee is going to need software, with that annual cost of £2,000. This is fine if that is all necessary spend, but as per the next point, that may not be the case.

• Excess software – Not all the software that is being paid for is needed. The generally agreed number for this is 30%, so tackling this issue can have a big impact on costs, and will have a compounding effect over time given annual price rises that are well above the general level of inflation

Excess All Areas?

To expand on the topic of excess software, there are a variety of reasons why companies end up with software that is surplus to requirements, and why they usually are unaware of the scale of the problem.

• The same or similar software gets purchased multiple times by different departments or employees. Why would a company need more than one CRM system? - but it’s surprising how often that’s the case.

• Software isn’t purchased in line with real business requirements in mind. Instead “gold-plated” requirements are used, with nice-to have functionality being purchased that never gets used. And that nice to have functionality won’t be free.

• Software stops being used, but nobody cancels the subscription. Most SaaS software auto-renews, and can have a lengthy notice period for cancellation, so if the original purchaser of the software leaves, they leave the company an ongoing financial commitment.

• The cost of hiring employees was mentioned above, but what happens when employees leave or change roles? Companies can end up paying for a lot more licences than they need.

What Can I Do About It?

The good news is that cutting down on excess software costs is achievable. Costimised can help organisations identify all the cloud software that they have in use and where there are opportunities to reduce costs. We can highlight quick wins and create a roadmap to making your cloud software estate streamlined and cost-effective. Contact us at enquiries@costimised.com to set up a no-obligation discovery call where we can assess the potential for cost savings.

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