This ongoing “Great Restructuring” of the tech industry is causing a lot of pain and heartache for those who lose their jobs. However, despite the headlines, the SaaS market continues to see steady growth. Thus, it’s important to remember that there are many positive sides to these layoffs – they can sometimes provide some much-needed fresh perspective and new perspectives on how companies should operate. This continual reshaping of the tech landscape will only benefit those who remain flexible and open-minded enough to keep up with ever-changing trends.
As Spending Increases, So Too Do Supplier Requirements
Given that SaaS spending is anticipated to rise by 18% this year, it becomes increasingly important for technology suppliers to be able to swiftly and easily meet customer demands. This is why many technology providers have slowly been increasing their investment in automation and artificial intelligence (AI), both as a means of helping suppliers meet customer demands more quickly and efficiently, as well as reducing human errors.
Large software companies are struggling to keep up with buyouts and layoffs as they grapple with underlying economic uncertainty. Buyers and sellers are feeling the impact, causing sluggish market activity. This instability has resulted in lowered prices for software licenses and applications, which will likely continue through the end of 2014.
The bottom line is that in 2023, SaaS will still be a viable option for businesses. However, it is going to take longer to purchase and sell through this technology. This is because there are more opportunities for buyouts and expansions now, than there were a few years ago.
A flat renewal is the new “upsell”
The decline in seat licenses is likely to have a direct impact on the growth of SaaS firms. Since a large majority of SaaS suppliers require access to significant numbers of seats, the sudden loss of so many licenses will inevitably have a negative effect on company expansion.
We analyzed more than $2.5B in SaaS spending from 18,000 deals across 2,500 suppliers and anticipate that SaaS spending will increase 18% this year.
The rise in SaaS spending is clear evidence of the continued growth of this innovative software delivery model. According to our analysis, SaaS spending is expected to increase by 18% this year, reaching $2.8 billion. This represents a large opportunity for suppliers who can provide efficient and cost-effective solutions that can help companies save time and money.
With so many software categories seeing contract value growth in recent years, it is no surprise that SaaS vendors are expecting contraction at renewal and not expansion. This is due to the influx of large, multi-national corporations who can afford to outspend their smaller counterparts on software licenses. Furthermore, with online services becoming more and more popular, many business owners are choosing to outsource their IT needs in order to focus on their core businesses.
In the current economy, SaaS companies are in a difficult position. The growth rate and share of wallet for their customers are taking a dip, potentially hurting the suppliers that make up these businesses. However, many customers aren’t in a position to approve much of an increase and the sooner SaaS vendors can normalize the idea that even flat renewal is a massive win in this economy, the better off they will be.
Mitigate the impact of layoffs on purchase and renewal cycles
It seems that the trend of long renewal cycles is gradually being reversed, with the fourth quarter of 2022 representing a breakthrough in terms of shorter cycle times. This could be indicative of an increasing customer willingness to renew their subscriptions, which may be due to the positive changes and innovations that companies have been making over the past six quarters.
This data indicates that layoffs and restructuring are negatively impacting the number of days it takes customers to renew their subscriptions. However, these changes may be temporary, as indicated by the 2% increase in renewals and 10% increase in new sales cycles. This suggests that companies are rebuilding or rejuvenating their businesses, which could lead to increased customer loyalty in the future.
Given the current shortage of skilled workers, it is not surprising that many businesses are experiencing delays in their procurement operations. However, one factor that is contributing to these delays is the increasing use of dispersed teams. As purchase decisions become more complex, it becomes harder for individual employees to review and make recommendations on specific items. This problem has been exacerbated by trends such as globalization and the growth of digital economies, which have created a larger pool of talent from which to draw.
