The SaaS license graveyard – and its cost to businesses

Published on the 05/03/2024 | Written by Heather Wright

The SaaS license graveyard – and its cost to businesses

While redundancy runs rampant…

More cautious software purchasing might be the order of the day, but companies are still leaving big bucks on the table through unused licenses and redundancy, while employees expensing the purchasing of AI tools is also booming.

A report from Zylo, an enterprise SaaS management platform, says enterprises, on average, are only using 49 percent of their provisioned licenses. That figure increases to 63 percent for organisations with 500 or fewer employees.

“Optimising utilisation is one of the biggest opportunities to cut costs.”

Meanwhile, apps such as online training, project management and team collaboration are among the most redundant.

The unchecked SaaS sprawl is resulting in an average of $18 million in annual license waste for enterprises, while for small businesses – in this case defined as those up to 500 employees – Zylo claims the figure is around $2 million.

Gartner has Australian organisations to spend AU$10.8 billion on SaaS in 2024, up 17.6 percent year on year, with New Zealand organisations expected to spend NZ$1.1 billion, up 16.6 percent on 2023. Meanwhile, according to IDC’s Q4 2023 State of the Marketing report, SaaS comprises 60 percent of all software spend. But as cloud use grows, so to do cost concerns and optimisation efforts.

Late last year the Infosys Cloud Radar report noted that around 50 percent of companies were struggling to manage cloud costs. The report, which included Australia and New Zealand, also noted that while companies were continuing to invest in cloud, less than half of the committed spend is actually being utilised.

Infosys managing partner and global consulting cloud lead Chris Leigh-Currill, noted at the time that cloud can be a black hole for money.

Zylo’s report, now in its sixth year, is based on analysis of Zylo customer data, which covers 30 million SaaS licenses and US$34 billion in SaaS spend under management, and surveys of more than 100 IT and software management

It shows when it comes to SaaS, license waste – whether from employees leaving or changing roles, apps just not being as widely adopted as expected or another cause –  is the biggest challenge reported by IT professionals, with 71 percent reporting that waste is their top business driver for prioritising SaaS tracking.

Zylo says companies should be aiming for a utilisation rate of 90 percent – a figure that enables optimal usage while also providing ‘wiggle room’ for growth throughout a contract period.

“Optimising utilisation is one of the biggest opportunities for IT and software asset management teams to cut costs.”

Redundant or duplicate apps are also a key issue, Zylo says, despite organisations actively rationalising their portfolios. Many companies having multiple apps doing the same thing, or multiple departments paying for the same app on separate contracts.

Old favourites online training, project management and team collaboration tools remain in the top three spots for the most redundant application functions in 2023. But in some good news, the average number of apps in per category is decreasing, showing some rationalisation is happening.

The 2024 SaaS Management Index Report says the vast majority – some 93 percent – of IT and software asset management professionals now consider SaaS use and spend as part of their overall cloud optimisation initiatives. And 84 percent say their company is moving from a decentralised SaaS ownership model to an IT-led motion.

“They want to enable the business to make buying decisions and own apps, but ahve oversight into the process along with other key stakeholders, like privacy, infosec, procurement, etc,” the report says.

“This centralised ownership model is key to improve governance, strengthen security and compliance and lessen shadow IT and data silos.”

That’s in line with what Gartner senior director analyst Sid Sahoo told iStart last week. He’s been urging local organisations to start measuring enterprise-wide technology spend in general.

The Zylo report says almost half of a company’s applications are being expensed by employees – and AI is starting to make its presence felt here, too, with OpenAI APIs and ChatGPT making the making the list of the top 15 apps expensed for the first time, at 11 and 14 respectively.

But Zylo notes that the popularity of many of the other apps being expensed, including LinkedIn, Grammarly, Canva, Adobe, Kahoot and SurveyMonkey, coincides with the recent integration of Ai functionalities.

“The unmanaged use of AI tools can lead to hidden costs, such as subscription fees or API usage charges. Additionally, using ChatGPT may introduce security risks as employees may inadvertently share sensitive information with the tool or expose the company to potential data breaches.”

The list of most expensed SaaS apps highlights the changing employee software preferences. Only one of the top five – Kudoboard – is a returning player. Adobe Acrobat dropped from number two last year to seven this year, and Twilio, MailChimp and GoDaddy dropped off the list.

Ben Pippenger, Zylo co-founder and chief strategy officer, says insufficient SaaS management isn’t just a cost problem, it’s an innovation killer.

“When budgets bleed out through waste and hidden costs, that’s money you can’t invest in new business initiatives.”

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