Enterprise software spending is expanding rapidly and becoming a bigger slice of IT budgets, challenging IT organizations to manage it more effectively.

The trend stems from several sources, including a greater reliance on SaaS platforms and a proliferation of software offerings across categories from AI to IT operations. Better software adoption guardrails and governance structures could help control spending and get more out of software investments, but those measures can prove challenging to deploy.

Recent reports shed light on the software spending issue:

* Gartner forecasts worldwide enterprise software spending to reach $633 billion in 2024, an increase of 13.9% from 2023.
* A Flexera 2024 State of the Cloud Report found that 85% of organizations are overspending on cloud services,with software as a service (SaaS) being a major contributor.
* Torii data shows that companies typically have 80-100+ SaaS applications, and 20-30% of SaaS licenses go unused.
* Zylo’s 2024 SaaS Management trends Report indicates that SaaS waste is a significant problem, with organizations losing millions annually due to unused or redundant subscriptions.

Multiple Factors Account for Software Price Hikes

While inflation has ramped up the cost of IT commodities in recent years, the software spending increases aren’t necessarily tied to broader macroeconomic patterns. Enterprise software prices have consistently risen faster than the U.S. inflation rate, as measured by the consumer price index, noted Ashwin Bhave, managing director and senior partner at BCG and a co-author on the research paper.

Instead, Bhave cites the growing enterprise dependence on SaaS platforms. using SaaS to automate core business functions makes it difficult for customers to change providers. This opens the way to vendor price hikes.

“These products are getting more and more widely adopted, and they are quite embedded in the clients they serve,” Bhave said. “It is not that easy to switch, and so it is more feasible to pass on price increases.”

SaaS subscription renewal rates are also driving up costs. Ironically, the rising rates are, at least in part, a reaction to software cost-cutting measures. Dhaval Moogimane,high-tech and software practice lead at West Monroe,said enterprises have adjusted the number of seats and trimmed unused modules in the last year.Vendors have jacked up their fees in response.

“Software providers are seeing their customers push back on the number of seats they wont to use, the number of users,” he said. “So, pricing for renewals has gone up.”

In addition,software vendors,recognizing higher renewal pricing,are throwing in new capabilities or modules as a negotiating tactic,Moogimane said.

The arrival of more software, in general, contributes to the growing softwa

Data Consolidation Drives Efficiency and Quality for Pilgrim’s and OpenText

Companies are increasingly focused on streamlining their data tool landscapes to improve efficiency, data quality, and ultimately, business outcomes. Both Pilgrim’s and OpenText are seeing significant benefits from consolidating their tech stacks.

Pilgrim’s Centralizes Data for Better Insights

Pilgrim’s, a major poultry producer, is working to centralize it’s data tools to ensure consistency and improve decision-making. according to Steve Booth, Pilgrim’s VP of IT, having data in a single location promotes consistency. Having consistent data helps the company draw the right conclusions in areas such as food safety, where it pulls data from numerous family-owned poultry farms, Booth said. Data tool consolidation also simplifies training, since employees can focus on a core set of tech resources. It lets employees spend less time reconciling data and more time analyzing data and identifying opportunities for improving business outcomes, Booth added.

OpenText Cuts Tool Count, Boosts Quality

Shannon Bell, CIO and chief data officer at opentext, says the information management software company is “dramatically simplifying” its tool landscape. About 18 months ago, the company launched an initiative to deploy more of its own technology in-house.As part of that effort, OpenText examined every business domain, from engineering to customer support.The company found that it had 1,600 tools, which it has since reduced to about 1,200.

“The goal was to rationalize and decommission systems,” Bell said. In one example, OpenText’s 8,000-plus developers had been using around 50 tools. the company has replaced those products with one toolkit, OpenText Software Delivery Management. The cost savings proved to be a significant benefit of that consolidation. Though, “it also helped us improve the quality of the products as everyone was using the same tool set,” Bell said. Developer training and onboarding could also revolve around one set of tools rather than a multitude of offerings. Bell said establishing target states across OpenText’s business domains was critical for reducing tool sprawl.

The Rise of Software: IT Budgets Shift Towards Code

The technology landscape is undergoing a significant change, with software rapidly becoming the dominant force in IT spending. As hardware costs decrease and the demand for sophisticated applications grows, a larger portion of IT budgets are being allocated to software, and experts predict this trend will accelerate in the coming years. This shift has profound implications for IT professionals and how organizations manage their technology investments.

The Growing Dominance of Software

Historically, IT budgets were heavily weighted towards hardware – servers, networking equipment, and physical infrastructure. However, advancements in cloud computing, virtualization, and software-as-a-service (saas) have dramatically reduced the cost of hardware while concurrently increasing the value and complexity of software.This is leading to a essential change in where IT dollars are spent.

According to industry analysis, software is poised to consume an increasingly large share of IT budgets. A recent prediction suggests that software could account for half, or even more, of total IT spending within the next decade. This projection highlights the critical importance of effective software management.

Implications for IT Professionals

as software becomes the primary focus of IT spending, the role of IT professionals is evolving. The emphasis is shifting from simply maintaining hardware to strategically managing the entire software lifecycle – from procurement and deployment to maintenance, security, and updates. This requires a new set of skills and expertise.

“In which case, the entire job is going to be about how do you manage software,” stated an industry expert, emphasizing the future direction of the IT profession. This includes skills in areas such as:

• Software Asset Management (SAM): Optimizing software licenses and ensuring compliance.
• DevOps: Streamlining the software growth and deployment process.
• Cloud Computing: Managing software applications and infrastructure in the cloud.
• Cybersecurity: Protecting software from vulnerabilities and threats.
• Data Analytics: Utilizing software to analyze data and gain insights.

The Rise of SaaS and Cloud-Based Solutions

The growth of Software-as-a-Service (SaaS) is a major driver of this shift. SaaS models allow organizations to access software applications over the internet on a subscription basis, eliminating the need for expensive upfront investments in hardware and software licenses.Gartner reports continued strong growth in the SaaS market, further solidifying its position as a dominant force in the IT landscape.

Key Takeaways

• Software is rapidly becoming the largest component of IT budgets.
• The shift is driven by decreasing hardware costs and the increasing value of software.
• IT professionals need to develop new skills focused on software management.
• SaaS and cloud-based solutions are accelerating this trend.

Looking Ahead

The trend towards software-centric IT spending is expected to continue, reshaping the technology industry and the roles within it. Organizations that proactively adapt to this change by investing in software management capabilities and developing the necessary skills will be best positioned for success in the future. The ability to effectively manage software will be a defining characteristic of accomplished IT organizations in the years to come.