Software spending is down. How will software vendors respond?

Enterprise software spend is down 3.6% year over year as a result of pressure to cut costs and review IT initiatives – a stark contrast to last year’s 11.7% growth. Naturally, this will have a material impact on revenues and cash flow for software vendors of all sizes.

Many IT leaders are understandably worried about how this might affect vendor behavior – particularly if they have been on the receiving end of aggressive software license compliance audits in the past.  History is on their side, too. After the banking crisis of 2008, many organizations found themselves severely impacted by a lack of flexibility in software contracts.

I think it’s worth addressing whether we will see a repeat of the 2008-09 situation, or the software publishers will respond differently to any revenue shortfalls.

While we’re not privy to internal vendor discussions on how they plan to respond, there has been a lot of discussion and speculation on platforms such as LinkedIn. In September, SHI ran its own poll, inviting its followers to have their say.

How will vendors respond to the decline in new license sales?

According to the poll, 64% of respondents feel software vendors will seek to generate new sources of income by raising license and maintenance prices, creating new features and bundles, and increasing audit activity.

The signs point to a mixed response from software vendors. While some may well take an unsympathetic and rigid line on licensing and renewals, there is evidence to suggest that other software publishers are taking a much more mature position that offers a stark contrast to what we saw 12 years ago.

For instance, in a recent episode of the SHI Innovation Heroes podcast, Cisco’s Michelle Chiantera explained that Cisco has provided both customers and partners with flexible financing (including deferred payment terms) to help them continue operating, innovating, and leveraging technology through the pandemic. (If you don’t have time to listen to the whole thing, this is at around 5 mins 55 secs).

Cisco’s pragmatic and sympathetic approach will no doubt be mirrored by other more forward-looking vendors. But it’s worth recognizing that not all vendors will have the financial solidity to be quite so flexible. Other vendors are trying to at least be more flexible and creative with their licensing and bundling, although you might need a licensing specialist to help you navigate and benefit from these changes.

While some people talk about “going back to normal” and others talk about a “new normal,” we still can’t make confident predictions about the future. That’s why you need to prepare for further uncertainty.

Take stock, take advice

That preparation comprises two key stages.

1) Know your current situation.

What software do you have deployed across your various platforms, and how are you using it? Have you changed how you are using software to support a hybrid workforce? Have you rolled out new software or users without your usual governance?

If you have an effective IT Asset Management (ITAM) or Software Asset Management (SAM) program in place, the chances are you have access to some of this data already. But if you have gaps in your data, it’s worth speaking to an ITAM specialist about how to fill these gaps so that you’re ready for the second critical phase.

2) Get good solid advice from the people whose job it is to watch these vendors closely.

They will be aware of changes in licensing rules, new products, and bundles, and pay attention to how aggressively vendors are auditing customers (and what those audits look like).

Firms like Gartner have specialist analysts who monitor key software publishers. If you have a research contract with them and enough time to read the research and speak to all the analysts that cover the vendors you use, it’s worth doing.

If you don’t have this access – or indeed the time to speak to multiple analysts – one of the best sources of guidance is from a specialist ITAM practice like the one at SHI. Together with licensing specialists from across SHI, our ITAM professionals are ideally placed to compare your current usage and future requirements against the latest licensing schemes and bundling options on offer from all major software publishers.

If there’s money to be saved, they’ll help you find it. If there are options to exchange under-used licenses for new schemes that better fit your future needs, they’ll know how. And if there’s a potential problem, they’ll help you fix it before you face an audit.

Be prepared for all eventualities

While saving money and avoiding license compliance issues is important, there are other risks and opportunities to consider. Operational resilience is key in uncertain times, and understanding your vendor landscape can minimize your exposure if your vendors are struggling.

We are seeing increased demand from SHI customers for help in identifying alternative technologies and planning migrations to minimize disruption and downtime. In addition to identifying the best license programs and product bundles, ITAM and procurement specialists can also assist you in negotiating contract terms and ensuring that you have the appropriate level of support and maintenance to meet your business’ needs.

SHI’s ITAM and procurement teams can support you in working with your vendors. They will ensure you have the information you need to make the right decisions as your organization responds to the changing customer and vendor landscape.

For a free software license planning consultation, reach out to SHI’s ITAM team or contact your SHI Account Executive.