The hidden costs of software subscriptions
Updated: Nov 2, 2020
Most software subscriptions are woefully underused. Pay as you use may be the answer.
The Software-as-a-Service model, or SaaS is rapidly growing. Over the last five years, the public SaaS market has more than doubled its market size, from $63.19 billion in 2014 to $141 billion in 2019. SaaS is expected to continue to record a double-digit growth, and is projected to reach $307.3 billion by 2026, at a CAGR of 11.7%. This comes as no surprise because SaaS is more accessible, easier to use and easier to deploy.
As SaaS spending and adoption continue to rise, three themes have become evident among organisations and users across the globe:
Creeping costs
SaaS is decentralised across organisation
Poor utilisation of SaaS licences
1. Creeping Cost
Compared to 2018, overall spend per company on software subscriptions have gone up by 50%, according to 2020 SaaS Trends report. SaaS companies often entice potential users by offering one month trial period, a low monthly subscription charges and easy payment options. Subscription of a software application at $9.99 per user per month seems like a modest cost, however, with the average employee having at least 8 subscriptions, these costs can increase substantially. And with an enterprise having hundreds or thousands of employees, the cost can be significant if not managed properly.
2. Saas is decentralised across organisation
As organisations accelerate time to market, removing bureaucracies and empowering employees, employees have now become software decision makers. Software are often subscribed and paid for from business units budgets. According to research firm IDC, 70% of US technology spending are funded by these business functions. With most organisations do not have proper procedure to monitor and control software subscriptions, this often led to escalating subscription costs and poor utilisation of existing SaaS licences.
3. Poor utilisation of SaaS licences
According to 2020 SaaS Trends report, SaaS waste almost doubles year on year. Duplicate subscriptions increased by 80% from 2018 to 2019, with the average number of duplicate per company up from 2 in 2018 to 3.6 in 2019. Orphaned subscription are also up almost 100% from 2018, with the number of orphaned subscription at 2.6 in 2019. And to make matters worse, software is only used at most 25% of the time.
Are we ready to break away from subscription?
Despite all this, more and more software companies are shifting towards subscription-based software. Statista predicts that as many as 86% of companies will offer only subscription-based software by 2023. For the users, this means that there is no real alternative to using the software but to subscribe.
While subscription-based software has made software more accessible and provide convenience to users, however, it also has struggled to address issues such as agility, flexibility and software under utilisation.
A new operating model
The COVID-19 pandemic has heightened the urgency for companies to operate in a more agile and cost effective model, and for individuals to continue to adapt, relearn and reskill. During these stressful and surreal times, it is important to think about what should a company's purpose be and its impact on its customers.
Here, at Fairware, we are building an integrated system with end users in mind. One of its key characteristics is to have a software catalogue, all accessible from one platform. Users access the catalogue, choose software that they want, and pay for what they use hourly, without contract. This system helps to improve software utilisation by eliminating duplicate and orphaned subscriptions.
By also lowering the barriers to entry to software where billable software per hour starts from pennies, we hope the end result will be the extension of software to many more people.