Global market intelligence provider IDC released a report this week predicting that spend on cloud services will increase an estimated 23.2% over 2017. The brisk pace means that SaaS vendors are winning. The IDC believes this growth will deliver $277 billion in spend, amounting to a CAGR between 2018 and 2021 of nearly 22%. More so than infrastructure or PaaS products, SaaS will attract the lionshare, or nearly two-thirds of the spend worldwide.
Cleanshelf has written about the relentless march of SaaS products into organizations of all sizes. IDC’s growth metrics suggest more of the same. And while the value SaaS tools provide is often worthwhile, the velocity and scale of SaaS deployments is delivering a shocking amount of spend. For unprepared companies, this has a rapid and surprisingly adverse impact.
If it doesn’t work, just cancel, right?
Easier said than done.
Consider what is buried in section 11.2 of Salesforce’s Master Subscription Agreement (emphasis ours):
“...Except as otherwise specified in an Order Form, subscriptions will automatically renew for additional periods equal to the expiring subscription term or one year (whichever is shorter), unless either party gives the other notice of non-renewal at least 30 days before the end of the relevant subscription term. The per-unit pricing during any renewal term will increase by up to 7% above the applicable pricing in the prior term, unless We provide You notice of different pricing at least 60 days prior to the applicable renewal term. Except as expressly provided in the applicable Order Form, renewal of promotional or one-time priced subscriptions will be at Our applicable list price in effect at the time of the applicable renewal. Notwithstanding anything to the contrary, any renewal in which subscription volume for any Services has decreased from the prior term will result in re-pricing at renewal without regard to the prior term’s per-unit pricing…”
This is not just about Salesforce. But it is worth recognizing that the arguably most successful SaaS company of all time auto-renews before terms end, includes 7% rate hikes and, in cases of reduced licensing, reprices to the highest level of the current price book regardless of previous term per-unit pricing.
Consequences of SaaS autorenewals
Salesforce’s success means other SaaS companies will adopt similar models.
Consider the repercussions when this happens across all SaaS vendors in a company stack. It is no wonder our State of SaaS Spend report shows that the US Enterprise is wasting up to 30% of their SaaS spend on wasteful contracts, redundant licenses and overpriced vendors.
Renewals and price hikes may be acceptable, but leadership needs to compare the value of the software against term revisions. To do this companies need to have a central view of what is being used, by whom and how often.
How to tackle SaaS autorenewals
To combat ballooning license spend, Cleanshelf encourages the following:
- Research the most appropriate SaaS vendor
Before subscribing to any SaaS vendor, do research that will help you determine if the vendor is the right for you. You can use our SaaS vendor evaluation template that has its criteria based on SaaS’s security, its service and cost, and its features.
- Diligently measure the value that each application provides to the organization.
Using Cleanshelf Service Reviews, companies can keep line-of-business leaders accountable for their SaaS purchases and usage. These check-ins optimize future planning and help IT and finance partner with the business to make sure that licenses contribute to the bottom line. This resists the trend of auto-renewal and surprise contract extensions.
- Optimize SaaS accounts to account for redundancy and functionality.
Tracking SaaS subscription spending by department gives leadership an overview of where licenses are being used, where redundant deployments are, where incompatible tools exist and where improvements can be made to preserve the enterprise cashflow.
- Tackle SaaS contracts long before the renewal and find its calendar benefits
Each SaaS company has its own financial year but most of them still have its end at the end of the year, which means you can find many SaaS contract benefits during December.
SaaS spend is growing globally. SaaS vendors are winning, and pricing terms are increasingly opaque and full of ‘gotchas’. Don’t let costs and deployments grow unchecked. Cleanshelf can help companies automate and monitor software usage, while improving spend ROI. Contact the team today for a demo and see how easy it is to take back control of the cloud ecosystem.
Ready to start controlling your enterprise SaaS?
Cleanshelf is the leading enterprise SaaS management platform focused on tracking, controlling, and benchmarking SaaS applications. Their SOC 2-compliant and AI-powered technology helps companies save up to 30% on their SaaS spending by automatically identifying unmanaged contracts, duplicate licenses, and wasted cloud software subscriptions. Based in San Francisco, Cleanshelf provides an enterprise-grade solution to over a hundred clients, including Hilton, Looker, and CoStar Group.