The cost of software-as-a-service (SaaS) subscriptions has been increasing at rates above inflation for years. Businesses, on the other hand, find themselves increasingly reliant on software for day-to-day operations, be it CRM, human resources, accounts or payroll. Is something about to give?
“A significant concern for chief financial officers is the relentless increase in software prices and the impact on businesses,” according to an April report by the IT Asset Management Review. “Over the past year, we have witnessed a substantial upward trend in software licensing and subscription costs, making it increasingly challenging to manage IT budgets effectively.”
The combination of increased subscription costs with extended contracting periods threatens to undermine profits for businesses – at least in the short to medium term.
TymeBank chief technology officer Bruce Paveley told TechCentral that software vendors should avoid increasing their prices too aggressively or risk losing customers.
“Any SaaS provider can price themselves out of the market, especially international providers who don’t adjust for the dollar/rand exchange rate,” Paveley said.
Exchange rate volatility is a particular risk for South African businesses. For example, a company with 10 users on Adobe Creative Cloud would have paid R15 704/month on 2 January and R17 154/month on 7 August – a difference of close to 10% before factoring in Adobe’s regular price increases.
Bank Zero CEO Yatin Narsai said businesses – especially those paying for software in stronger currencies – must think carefully about software contracts before committing to a particular vendor.
“While the rand has deteriorated against the dollar, causing cost pressures, companies using these services cannot easily migrate,” said Narsai. “There are always cheaper options available. However, once software systems are entrenched and integrated, they are nearly impossible to undo.”
TymeBank’s Paveley said that adopting a shrewd attitude towards contract negotiations will help businesses keep their costs low. Also, avoiding vendor lock-in is critical for the market’s ability to regulate prices effectively.
Read: Apple jacks up iCloud prices in South Africa
“Negotiations with the SaaS providers should be robust and should present value to both businesses. Make sure you sign up for the minimum offering to support your business at a price point that makes sense,” Paveley said. “The market has competition, and this should assist in managing costs; just don’t be scared to move.”
Read: Spotify hikes prices – South Africa spared
Consumers have not been spared from increases in SaaS subscription fees, with vendors of video-on-demand services, including Apple and Walt Disney Co, also raising their prices. Microsoft has also hiked the price of its Xbox Game Pass subscriptions this year. — (c) 2023 NewsCentral Media