SaaS vendors are hiking costs faster than inflation

SaaS vendors are increasing prices faster than both inflation and the typical growth rate of corporate IT budgets, but Gartner VP analyst Jo Liversidge thinks that canny buyers can reduce their bills by anticipating price hikes and planning to negotiate hard.

Speaking at the analyst firm's Symposium event in Australia last week, Liversidge said SaaS vendors have hiked prices by between 9 and 25 percent this year. While some price increases reflect exchange rate shifts or a vendor's desire just to charge more for their wares, many come after SaaS companies change the metrics they use to set prices or repackage licenses in ways that make them more expensive.

"Hidden costs are not new in SaaS – Salesforce customers have dealt with storage costs for years," Liversidge explained. "But we're now seeing a proliferation of hidden costs, particularly around generative AI capabilities."

Another way SaaS vendors increase costs is with "multipliers," a scheme that includes credits customers can spend on services under their subscription. "Many of these vendors reserve the unilateral right to change that multiplier," Liversidge said. A service that costs 10 credits can rise to 20 credits overnight, doubling the price. Users then burn through the credits in their subscriptions more quickly than anticipated and soon find themselves paying expensive excess usage fees.

Whatever technique a vendor uses to boost prices, Liversidge says SaaS slingers are increasing costs by considerably more than the 2.8 percent annual increase in corporate IT budgets Gartner detects when surveying its clients.

Liversidge advises fighting back with long-range planning that starts two years before a SaaS subscription renewal. That long horizon gives organizations the time needed to understand the full extent of SaaS use across their organization, a necessary step because if you have separate licenses for MuleSoft and Slack – both owned by Salesforce – you're missing the chance to bargain for a single subscription. Reviewing SaaS use can also reveal underused subscriptions, allowing you to see that some users could comfortably shift to a vendor's lower subscription tiers without that move ending in tears.

Two years is also a good time frame in which to plan a migration, and letting a vendor know you're considering that option can work wonders.

Long-range planning also leaves time for multiple rounds of negotiations, meaning you have more chances to secure a better deal.

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Geopolitical considerations

It's also worth considering how geopolitics can impact your relationship with a SaaS vendor, according to Luke Ellery, a VP on Gartner's procurement, asset, and vendor management team.

At Symposium, Ellery pointed to a recent incident in which Microsoft suddenly ditched a customer that appeared on a European Union sanctions list. Microsoft acted to protect itself, Ellery said, and can do so because SaaS vendors' contracts allow them to deny service under some circumstances.

Force majeure events such as natural disasters or wars are one reason SaaS operators can cut you off, which Ellery said seems fair enough until you consider that your source of online software is not obliged to tell you where they run their servers or store your data.

"Vendors shift governance risks to clients," he said, and you may therefore be at risk of an outage without knowing it.

He therefore recommends negotiating exit provisions to ensure you can continue operations if a SaaS provider decides to ditch you, including by arranging data escrow – in which your info is held by a neutral third party – to help with business continuity.

"Test your vendor's continuity plans," Ellery added, by practicing moves of key workloads to different datacenter regions.

"Don't accept increases as a done deal," Liversidge concluded. Organizations that learn how to negotiate with SaaS vendors will enjoy competitive advantages. "Those that don't may find themselves struggling with unsustainable cost growth," she warned.

Ellery also suggested developing negotiation skills.

"Continual price hikes are the norm," he said, and predicted Broadcom's acquisition of VMware, which saw prices rise by as much as 1,050 percent, was noticed by other vendors who now wonder if they can do likewise.

"We are worried about the VMware effect," he said. "Broadcom showed the market what is possible." ®