Saas Spending Continues to Increase

In a report published by Gartner earlier this year, the issue of SaaS management was brought front and center. Today's organizations are increasingly foregoing on-premise software for cloud- and subscription-based software. Gartner estimates SaaS spending will grow by nearly 20 percent to $76 million by 2020.

The reasons and benefits are obvious: no maintenance fees, little IT support, zero footprint, and simple upgrades, to name a few. While SaaS is quickly becoming the new norm for purchasing and IT, SaaS software management and SaaS vendor management is proving to be a bit more challenging. Much of this is unchartered territory.

The issue of SaaS management doesn't rear its ugly head until an organization begins to use multiple SaaS applications, particularly when it's across divisions and geographies. Because much of this software is easily accessible and often comes with a free trial period, unless there are enforced protocols, governance, and oversight in place, virtually anyone in the organization is free to download whichever SaaS application they think is cool or useful. Purchasing and finance often have no idea just how many applications are being purchased after that trial period. There is no order. Just chaos.

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Sure, the explosion of SaaS applications gives us a dizzying array of options promising everything from increased productivity to unprecedented accessibility. The problem, however, is complicated. First of all, these free trials expire. Secondly, every department has their favorite SaaS apps and can justify (or not) their absolute necessity. An organization is left with escalating costs and no real grasp on how many of these applications are being used, who is using them, and how much these one-off apps are costing the company.

Where Are Costs Coming From?

Most companies don't really care if their employees have found an app that helps them to their job better or faster. It's the cost of those apps that moves the needle. While SaaS applications may seem less expensive and surely less cumbersome than on-premise software, companies can spend thousands, even millions, for software licenses. Tragically, many of these licenses are a waste of money - not because the software isn't useful, but because they aren't being fully utilized.

When a company purchases licenses, it is assuming the software is both useful and will be used by those for whom they are purchasing it. But, when employees are free to download their own SaaS applications, they often do so in conjunction with halting their use of the replaced software. That license is still being paid for and renewed when that employee is no longer using it. Same thing occurs when an employee leaves the company or shifts roles and no longer uses that same software. If the license isn't being monitored for utilization on a per-employee basis, the company continues to pay for the license when it's no longer necessary.

Another issue, brought up by Gartner, is that when employees sign up for these SaaS applications themselves, they lose the bargaining power afforded by a mass license purchase. Prices continue to escalate as the contract renews, yet the company often has no idea the costs are getting out of control until the balance sheets begin to tip.

The SaaS model indeed has its benefits, but companies must take a proactive approach in managing the contracts, vendors, and costs. It's no longer an issue of compliance, that is, adherence to the terms and conditions of usage in the licensing contract, but of reducing costs associated with SaaS applications.

Related: 3 Reasons to Prioritize SaaS Spend Management

Gartner's Take

Gartner clearly recognizes the challenges organizations are facing when it comes to Saas management. They offer three recommendations for business leaders tasked with managing software licensing:

  • Demand self-service and granular active usage reporting from the SaaS provider or SAM tool vendor before committing to any contract to provide the data necessary for effective cost management and containment.
  • Prioritize their organization's SAM capability to focus on metering SaaS application usage to eliminate unnecessary tools, and ensure that any SAM tools in place, or being acquired, can deliver cloud service metering.
  • Implement and drive adherence to software requests, allocation and harvesting of unused software processes, to eliminate unnecessary or costly provisioning of SaaS services.

It may not be as simple as relying on the SaaS vendor to produce detailed reports of application usage per employee. Depending on the vendor, the reports content and timing will vary. All of those reports will still need to be aggregated, compared, and managed. Organizations end up with is disjointed reporting with little integrated perspective. Instead, Gartner suggests companies should "augment their SAM investments and demand SaaS-capable solutions and services from internal or third party providers."

A third party is likely better suited to aggregate the many bits of information from the various SaaS solution providers to offer a unified view of the overall Saas spend, utilization, and contracts.

What Companies Can Do Now to Contain Costs

Companies can do much more to contain costs when it comes to SaaS applications and they can begin today.

  • Establish corporate policies on SaaS application acquisitions and spend of any kind
  • Invest in a tool to unify SaaS management
  • Budget SaaS spend like any IT spend
  • Select software options and license quantities in advance
  • Measure utilization per employee and establish thresholds for retainment

Companies should easily be able to quantify the value of the SaaS applications as they measure not only how many employees use each app but how frequently they use it. It's one thing to know 150 employeed have logged into a CRM application, for example. It's quite another to understand that only 50 of them are using the application on a regular basis.

Keep in mind that many of these applications have single sign on and automatic login. If you are relying on a utilization report that only gauges usage based on logins, you are making decisions based on false data. Logins do not equate usage. Are you paying license fees for employees who are only automatically logged into an app they never or only rarely use?

How many former employees are you still paing license fees for specific software? How much SaaS overlap is there between departments? How many separate software contracts are being negotiated for the same software without the knowledge of those who are doing the negotiating? How much is the company forking over for SaaS application features that aren't being used? How many automatic renewals are missed because there is no centralized calendar?

Control Over the Chaos

Every one of these scenarios is happening on a regular basis in companies without an intentional solution to manage SaaS applications and vendors. With every added application, there comes contracts, licenses, renewals, fees, users, and owners. It forms an entangled web of solutions that can add up to exorbitant and mushrooming costs.

Companies must gain control over SaaS management and it shouldn't involve spreadsheets or email. These desktop tools are no match for this complicated ecosystem that continually evolves. It's time to invest in a unifying SaaS management tool that can provide the much needed insight into this complex world.

The bottom line? As companies opt for SaaS applications over on-premise software purchases, the need to monitor costs and usage data is critical. Costs can quickly escalate unnecessarily when left unchecked. It is essential for companies to get as much value from their subscriptions as possible to justify the costs.

 

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