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Boston Consulting Group (BCG) is warning that organizations need to rethink their approach to buying software as the ongoing push of SaaS into the market gathers pace.
Its analysis of Gartner's figures shows IT spending has grown 6 percent between 2019 and 2025 to reach about $5 trillion. However, the proportion of the total outlay spent on software has ballooned from 13 percent in 2024 to 21 percent in 2024, and much of that is down to software as a service, the BCG said.
In a new paper, the global management consultancy said the shift is making life tough for those in charge of buying software.
"Software procurement has become exceedingly complex, and companies are struggling to reduce spending in an increasingly fragmented landscape. Shifts in the industry — including a surge of new vendors, the rise of open source solutions, the transition from on-premises software to SaaS, new pricing models, frequently changing product offerings, and consolidation among vendors — are all raising the degree of difficulty," it said.
The trend this calls for a new approach to software buying that could slow spending, the consutling gropu adds, but also "reduce complexity in the technology landscape, lower technical debt, and free up cash to reinvest in high-impact areas, such as data, AI, and automation."
As well as SaaS, vendors have been introducing commercial models such as consumption-based pricing, rather than per seat or per employee.
"Many companies are struggling to track consumption across the enterprise, increasing the risk of cost overruns. These pricing shifts make traditional, flat-rate negotiations obsolete while increasing the risk of 'shelfware' — software that remains underutilized," BCG said.
Tech managers and buyers are becoming overly concerned about compliance with software contracts — the complex Ts&Cs which govern the orgs dos and don'ts – as well as the myriad sets of rules around fees. However overemphasis on compliance increases risk of overspending.
"Software asset management teams sometimes focus primarily on contract compliance to ensure that there are no volume overages. That kind of compliance mindset is understandable, but companies also need to ensure that the actual demand for software is justified and aligned to ongoing business requirements," BCG said.
To get to grips with this problem, buyers need to manage demand — that's figuring out who really needs the software in question, and why.
"Map the software asset portfolio to enterprise business capabilities to help uncover overlapping assets and provide insights into the tradeoffs between best-of-breed solutions and scalable software suites," the consultancy firm said.
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It recommends IT and/or procurement teams push back on business units when necessary. "For example, if a vendor offers premium user support, an organization should evaluate whether it is sufficiently different from the baseline customer support to warrant the higher cost," it said. Tech teams need to also to consider open source software, even for critical applications, as part of a plan to cut costs and the org's reliance on bigger SaaS vendors.
The report also recommends businesses obtain central oversight over their SaaS software by utilizing specialist SaaS management platforms, such as Productiv or Torii.
The market for enterprise software has experienced an irresistible push towards the SaaS model. New vendors have been built on it: Salesforce dominates the market for CRM, and Workday has gained a foothold in the market for HR and finance software. Meanwhile, older suppliers such as SAP have adopted it as a way to please investors and gain a greater share of customers' spending. ®
