In the realm of technology and software, the term "tech spend" is tossed around quite liberally. It represents the allocation of resources for purchasing, maintaining, and improving technology within an organization.
Over the past decade, as the wave of digital transformation washed over businesses globally, there's been an unprecedented surge in tech spend.
As the SaaS space continues on its meteoric rise, many companies have found themselves navigating a landscape where business operations hinge on dozens, if not hundreds, of software tools. These range from communication apps to customer relationship management systems, from project management tools to sophisticated data analytics software.
A recent report from BetterCloud underscores this trend, revealing that the average company uses approximately 130 SaaS apps, marking a significant leap from a decade ago.
Additionally, according to research from Vendr, the annualized spend on SaaS tools is growing at an average rate of 58 percent. Such growth can be attributed to factors such as the velocity of digital transformation initiatives and a higher demand for SaaS solutions that support remote work.
But with the growing dependence on technology comes a dark side: spiraling costs, complexity in managing multiple tools, and a potential drain on productivity due to the learning curve associated with each new tool.
As the spend piles up, it becomes increasingly difficult to keep track of the return on investment for each tool and to ensure they all function seamlessly together. As a result, there's a growing realization in the business community that unchecked tech spend might not be sustainable.
That's where this blog post comes in. We aim to delve into the reasons behind the dramatic surge in tech spend and unpack why there's an emerging need for a shift towards more strategic and consolidated tech management. This shift is even more relevant given the challenging economic landscape of 2023, where every dollar counts.
In the following sections, we will journey through the evolution of tech spend, examining how a tech boom led to the current situation and how the economic reality of 2023 is shaping the need for change. We will also explore the potential for consolidation to act as a panacea for sky-high tech spend, with a glimpse into tools like Parative that provide such solutions.
For a more in-depth analysis, we encourage you to check out the latest eBook from Parative, "The Great Consolidation: The How & Why of Minimizing Tech Spend." In it you will find a deeply researched assessment of the current macro environment and tangible strategies you can employ to help minimize your tech spend and consolidate your stack.
To gain a comprehensive understanding of this landscape, we will ground our exploration in real-life data and examples, making complex concepts more digestible. By the end of this blog post, we hope to offer you a clear path forward, towards a more strategic, efficient, and manageable tech future for your organization.
So, sit tight as we embark on this journey, unpacking the origins of our tech spend surge and exploring why it's time for a change. The goal is not to fear or resist the transformation that technology brings, but rather to embrace it in a manner that is sustainable, efficient, and beneficial for all facets of your business.
Let's begin by taking a closer look at the tech boom and the factors that led to an exponential increase in SaaS spending.
The advent of the tech boom, or the rapid expansion and adoption of technology across industries, marked a new era for businesses globally.
Key factors such as the rise of Software as a Service (SaaS) solutions, accelerated digital transformation initiatives, and an increased demand for remote work solutions have significantly influenced this development.
But the event that catalyzed the SaaS industry - and its propensity to spend on new tools - was undoubtedly the COVID-19 pandemic. The shift to work from home, the ease of capital, and the massive growth in valuations all had massive implications for the SaaS space.
One of the primary drivers behind the tech boom has been the proliferation of SaaS solutions. In stark contrast to traditional software that required users to buy, install, and manage their own IT infrastructure, SaaS providers host applications and make them available over the internet, typically for a subscription fee.
This shift had profound implications; SaaS made enterprise-level software accessible to businesses of all sizes.
Moreover, the subscription model allowed for more predictable expenditure, scalability, and lower upfront costs. These attractive features prompted many companies to embrace SaaS, fueling a rapid expansion of the SaaS market.
Alongside the rise of SaaS, digital transformation initiatives have taken center stage. Digital transformation refers to the integration of digital technology into all areas of a business, fundamentally changing how operations are conducted and value delivered to customers.
The need to stay competitive, coupled with the necessity to adapt to changing customer expectations and behaviors, has led many businesses to fast-track their digital transformation strategies.
As a result, software has become increasingly integral to virtually all business functions, contributing to a spike in tech spend.
The COVID-19 pandemic also played a significant role in the tech boom. As companies worldwide shifted to remote work, the demand for tools that supported collaboration, project management, communication, and other key business operations skyrocketed.
In fact, remote work became the catalyst for many companies to digitize operations and adopt SaaS solutions more extensively, further fueling the surge in tech spend.
According to research by Gartner in 2022, this convergence of factors has led to some impressive statistics. Global spending on SaaS reached $146 billion in 2021 and is expected to surge by 33 percent to reach $195 billion in 2023.
Moreover, the SaaS Trends Report by Vendr reveals that the average growth rate for annualized spend on SaaS by company size is 58 percent. Furthermore, organizations are now using an average of 130 SaaS apps.
The sheer number and variety of SaaS applications used within companies today underscore the extent of the tech boom.
While this rapid growth and adoption of technology have many advantages, it's also raising concerns.
One key issue is the strain it places on an organization’s operational efficiency and bottom line.
Unchecked tech spend can lead to software sprawl, where companies grapple with managing an overwhelming number of tools. This sprawl can hinder productivity as employees juggle between various applications, and it can lead to data silos, where important information is compartmentalized within specific tools.
Moreover, the increased spending on tech often raises questions about return on investment. Given the ever-evolving nature of software, companies may find that tools become obsolete quickly, or that there is considerable overlap in functionality between different applications.
With tech spend reaching new heights and the potential downsides of unchecked tech adoption becoming more evident, it's clear that a shift in how we manage tech spend is needed.
In the next section of this blog, we'll delve into the current economic context and explore how these factors are making the case for a more strategic approach to tech spending. From the end of the era of cheap money to the tightening financial constraints of tech companies, we'll look at why it's more critical than ever for businesses to consider the efficiency and effectiveness of their tech spend.
The dynamic nature of the global economy has brought forth new challenges in 2023 that are influencing businesses in many ways, particularly in the tech sector.
High inflation rates, the conclusion of an era of rock-bottom interest rates, and the shrinking financial valuations within the tech industry have led to an atmosphere of economic austerity that calls for a reevaluation of existing business strategies.
Historically, low interest rates had been a boon for tech companies. Cheap money fueled business expansion, acquisitions, and investments into new technologies. However, the era of rock-bottom interest rates that drove the tech industry for over a decade has come to an abrupt halt.
In March 2023, the annual inflation rate in the US reached 5.6%, a significant rise compared to the 2.1% average reported from 2000 to 2020. The rise in inflation rates has led to a corresponding increase in interest rates, resulting in higher costs of financing for companies across the board. For tech companies that had previously relied on the ease of securing loans and investment, this presents a new challenge.
Concurrently, the tech industry is experiencing a contraction in financial valuations. Extreme valuations in the past had made it easy for tech companies to issue stock or take on loans for aggressive expansion. However, the economic realities of 2023 have drastically altered this landscape.
According to CB insights, in late 2022 tech valuations in public markets were down nearly 30% compared to the same quarter the previous year.
The combination of higher interest rates and a decrease in valuation has resulted in an increase in financing costs. Tech companies are now faced with the reality of more expensive loans and a reduced ability to raise funds through issuing stock.
This change has not only disrupted business models but also led to a reconsideration of business strategies.
These economic changes have had a considerable impact on tech companies, leading to some tough decisions. In an effort to cope with these new economic realities, thousands of tech companies have resorted to layoffs and significant cuts in investments. Even major tech companies like Amazon are feeling the impact, with layoffs and closures of operations that are not financially viable.
According to layoffs.fyi, there have been 371,303 layoffs in tech between 2022-2023!
This stark shift from a focus on expansion and acquisition to one of survival and sustainability signals a profound change in the tech industry.
The era of easy acquisition, at massive valuations, fueled by cheap money, has ended.
Q3 and Q4 2022 saw a massive drop off in M&A activity in the tech space that has persisted into 2023 with no end in sight.
Tech companies can no longer rely on being acquired as a primary strategy for expansion. This shift has necessitated a reevaluation of tech spend, forcing companies to seek more efficient ways to manage their SaaS tools.
This change represents not only a strategic shift but also a cultural one. The focus is now on making the most of existing resources and maximizing efficiency, rather than on acquiring new technologies and capabilities.
In the next section, we'll delve into how this new economic reality is impacting the tech spend landscape and how businesses are adapting to maintain operational efficiency and competitiveness.
We'll explore the concept of SaaS consolidation as a strategy for managing tech spend more efficiently, providing insights into why this approach is gaining traction in the face of the current economic challenges.
The current economic climate of 2023 has compelled businesses to reevaluate their existing strategies and look for ways to adapt. Particularly in the tech industry, the exorbitant tech spend that characterized the previous years is no longer sustainable.
Companies are forced to rethink their tech spend strategies, moving away from unchecked expansion towards more efficient consolidation.
The robust expansion of the tech industry over the past decade has largely been fueled by a 'more is better' philosophy, characterized by escalating SaaS adoption rates and tech spends. However, the changing economic reality has necessitated a shift from this strategy of unchecked expansion. The focus is now on optimizing the value and utility of existing resources, and on seeking ways to streamline and economize tech spends.
Enter the concept of tech stack consolidation.
Rather than continuously adding new SaaS tools, companies are beginning to recognize the potential benefits of consolidating their existing tech stack. With the end of the era of easy acquisitions and the advent of higher financing costs, efficiency and resource optimization have taken precedence.
The consolidation of a company's tech stack can yield numerous benefits.
The most immediate benefit of consolidation is the potential for significant cost savings. By reducing the number of redundant or underutilized tools, companies can eliminate unnecessary spending on software licenses, subscriptions, and maintenance costs.
A study by the IT and Cloud Management company Flexera found that organizations waste up to 38% of their software spend—an average of $7.4 million annually—due to a lack of use or because employees continue to leverage outdated solutions.
Additionally, consolidation can streamline operations and improve efficiency. Instead of managing multiple SaaS applications with overlapping functionalities, companies can focus on fewer, more integrated tools, reducing the complexity and redundancy of their tech stack.
Finally, consolidation enables better resource allocation. The resources saved from reducing tech spend can be redirected towards other areas of the business, enhancing overall operational efficiency and competitiveness.
The shift towards tech stack consolidation is not merely a reaction to the current economic challenges; it's an active strategy to navigate through them.
In a time when efficiency and cost-effectiveness are paramount, consolidation offers a path to maintain operational efficiency while reducing unnecessary expenditure.
Consolidation also equips businesses with the flexibility and agility to adapt to changing economic conditions. By streamlining their operations and reducing their tech spend, companies can remain competitive and potentially emerge stronger from the current economic challenges.
In the next and final section, we'll look at how tools like Parative can aid in this consolidation process, helping businesses reduce tech spend and adapt to the new economic reality.
Stay tuned as we dive deeper into the practical side of tech stack consolidation.
In the face of economic challenges and the urgent need for tech spend consolidation, companies need a practical solution. That's where Parative comes into the picture. Built to simplify the SaaS consolidation process, Parative emerges as a powerful tool that can help businesses streamline their tech spend and make the most of their existing resources.
Parative is not just a tool but a comprehensive platform designed to drive Net Revenue Retention (NRR) without the need for complex implementations. Its unique combination of features allows companies to manage their customer success efficiently, all under one roof.
With Parative CS, companies get access to the Parative Success Sidekick, a CSM-specific cockpit that includes everything needed to streamline account management, optimize daily tasks, and boost NRR.
As we reach the end of our exploration of the shifting landscape of tech spending, let's take a moment to reflect on the journey we've traveled.
We began with a snapshot of the tech boom, a period of rapid growth fueled by the rise of SaaS solutions and an increased demand for remote work. We saw how companies enthusiastically embraced these new tools, leading to a surge in tech spending.
The result was an explosion of SaaS applications within organizations, with the average company utilizing an astonishing 130 different SaaS apps. Yet, this unchecked expansion came with its own set of challenges, threatening operational efficiency and bottom-line performance.
Fast forward to the economic reality of 2023. With rising inflation, the end of rock-bottom interest rates, and shrinking tech valuations, the era of unfettered tech spend had come to a jarring halt. Companies were forced to grapple with a new reality of higher financing costs, layoffs, and investment cuts.
The freewheeling days of easy acquisitions, fueled by cheap money, were over. It became clear that a new approach was needed.
We then looked at the pressing need for a shift in tech spending strategies. The unfettered growth model that had dominated the tech industry was no longer viable. Instead, companies needed to focus on consolidation, finding ways to streamline their operations, reduce costs, and better allocate their resources. This shift was not just about surviving the economic challenges of 2023, but about emerging stronger, leaner, and more efficient.
As we look ahead to the future, it's clear that the time for unchecked tech spend is over. But, this isn't a cause for alarm. Instead, it's an opportunity to reassess, to streamline, and to build more efficient, sustainable business models. It's a chance to bring clarity to complexity and to transform challenges into opportunities.
So, as we wrap up, we encourage you to delve deeper into this topic. We invite you to download our comprehensive eBook, where we discuss the path to tech spend consolidation in much greater detail.
It's time to rethink how we manage our tech stacks and embrace the opportunities that consolidation can bring. Together, we can navigate the economic challenges of 2023 and build a more efficient, more sustainable future.