Tag: EC Cloud and Enterprise Infrastructure

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SaaS is still open for business, but it’s going to take longer to buy and sell

Ryan Neu Contributor
Ryan Neu is the founder and CEO of Vendr, a SaaS purchase platform. Previously, he was a B2B SaaS sales leader at both InVision and HubSpot.
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The “Great Restructuring” continues and Layoffs.fyi tracked 80,000 lost jobs in tech in January 2023. This brings the total to well over 230,000 from more than 1,000 companies since 2022. Yet, despite all the negative headlines, the SaaS market continues to see steady growth. Gartner predicts software spending will increase by 11.3% this year, but my company’s internal data leads me to be slightly more bullish.

The fourth quarter of 2022 and the first quarter of 2023 show steady increases in both spending and requests for new purchases. We analyzed more than $2.5B in SaaS spending from 18,000 deals across 2,500 suppliers and anticipate that SaaS spending will increase 18% this year.

Yet while software spending continues to grow, buyers and sellers face immense challenges dealing with the impact that layoffs and underlying economic uncertainty will have on the software market.

The bottom line? In 2023, SaaS is still open for business, it’s just going to take longer to buy and sell.

A flat renewal is the new “upsell”

One of the most direct and immediate impacts of recent tech layoffs on the SaaS sector is a decline in seat licenses. A quarter of a million layoffs equals tens of millions of individual seat licenses lost for SaaS suppliers.

We analyzed more than $2.5B in SaaS spending from 18,000 deals across 2,500 suppliers and anticipate that SaaS spending will increase 18% this year.

We have seen average contract value (ACV) going up in some of the most popular software categories. This includes cloud data integration (which includes products like Fivetran and Celigo) up 82% as a category, mobile device management (which includes products like Jamf and Kandji) up 84% as a category, and project management tools (which includes products like Asana and Monday.com) up 78% as a category. Even so, we predict that SaaS vendors across the board will see contraction at renewal, not expansion.

Suppliers can expect a distinct downturn in both the growth rate and share of wallet (the amount a customer spends regularly on a particular software vs. buying from a competitor). We have seen suppliers attempt to recoup lost revenue with renewal uplifts as high as 20% (compared to the typical 3-5%.) Unfortunately, many customers aren’t in the position to approve that much of an increase. The sooner SaaS vendors can normalize the idea that even a flat renewal is a massive win in this economy, the better off they will be.

Mitigate the impact of layoffs on purchase and renewal cycles

Over the past six quarters, renewal cycles have remained consistently above 60 days on average. The fourth quarter of 2022 represented a breakthrough, as renewal cycle time decreased 11% –– from 63 days in Q3 to 56 in Q4.

Unfortunately, we predict that continued layoffs and restructuring will drive that number back up in 2023. Early Q1 data validates this hypothesis, with renewals increasing 2% to 57 days and net new sales cycles increasing 10% to 46 days.

A study by SAP showed that 55% of companies with more than 50,000 employees claimed that staff shortages have significantly slowed their procurement operations. Two-thirds of those same companies blame increasingly distributed teams for purchase decision delays.

SaaS is still open for business, but it’s going to take longer to buy and sell by Walter Thompson originally published on TechCrunch

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The cloud backlash has begun: Why big data is pulling compute back on premises

Thomas Robinson Contributor
Thomas Robinson is COO of Domino Data Lab, where he is responsible for revenue and go-to-market, leading sales, marketing, professional services, customer support and partnerships.

The great cloud migration has revolutionized IT, but after a decade of cloud transformations, the most sophisticated enterprises are now taking the next generational leap: developing true hybrid strategies to support increasingly business-critical data science initiatives and repatriating workloads from the cloud back to on-premises systems. Enterprises that haven’t begun this process are already behind.

The great cloud migration

Ten years ago, the cloud was mostly used by small startups that didn’t have the resources to build and operate a physical infrastructure and for businesses that wanted to move their collaboration services to a managed infrastructure. Public cloud services (and cheap capital in a low interest-rate economy) meant such customers could serve a growing number of users relatively inexpensively. This environment enabled cloud-native startups such as Uber and Airbnb to scale and thrive.

Over the next decade, companies flocked en masse to the cloud because it lowered costs and expedited innovation. This was truly a paradigm shift and company after company announced “cloud-first” strategies and moved infrastructures wholesale to cloud service providers.

Cloud-first strategies may be hitting the limits of their efficacy, and in many cases, ROIs are diminishing, triggering a major cloud backlash.

The growing backlash

However, cloud-first strategies may be hitting the limits of their efficacy, and in many cases, ROIs are diminishing, triggering a major cloud backlash. Ubiquitous cloud adoption has given rise to new challenges, namely out-of-control costs, deepening complexity, and restrictive vendor lock-in. We call this cloud sprawl.

The sheer quantity of workloads in the cloud is causing cloud expenses to skyrocket. Enterprises are now running core compute workloads and massive storage volumes in the cloud — not to mention ML, AI, and deep learning programs that require dozens or even hundreds of GPUs and terabytes or even petabytes of data.

The costs keep climbing with no end in sight. In fact, some companies are now spending up to twice as much on cloud services as they were before they migrated their workloads from on-prem systems. Nvidia estimates that moving large, specialized AI and ML workloads back on premises can yield a 30% savings.

The cloud backlash has begun: Why big data is pulling compute back on premises by Jenna Routenberg originally published on TechCrunch

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Q1 2023 market map: SaaS cost optimization and management

Jonathan Schwartz Contributor
Jonathan Schwartz is an investment associate at Ibex Investors. He focuses on the firm’s growth fund portfolio as well as new investment opportunities.

When engaging with our portfolio companies as well as with new investment opportunities, we’ve noticed that “profitability” and “efficiency” are two words that are often grouped with “growth” in every sentence.

Three months into 2023, investors continue to use buzz words like “responsible growth,” “business efficiency” and “quality marketing” when explaining how VC-backed companies should do business this year. That may be true, but there is no textbook for how a company can actively reduce its budget without slowing down growth in the near term.

Over the past few months, we have examined, demo’d and reviewed over 30 companies that we define as “first-degree, gross-margin-enhancing businesses.”

What does this mean? The “first-degree” part of that has to do with the now. Investors are knocking at the door to see improvements every quarter. Companies that can help you with long-term efficiencies will not help you when you next look to raise money in six, 12 or 18 months.

The “gross-margin-enhancing” part of this definition is important because simply reducing costs in lieu of growth will not work. Likewise, maximizing growth with little sensitivity around costs won’t work in 2023.

saas cost optimization

Image Credits: Ibex Investors

In this article, we’ll look at emerging companies that can efficiently and effectively support organizations in their efforts to deliver growth while optimizing and managing costs in the near and long term.

Given the market right now, investors want to see companies following forecasts more than ever.

The value proposition of the companies in this mapping is to help businesses continue their growth journey while optimizing and reducing costs in their current business structure. That said, there is no-one-size-fits-all solution. For this reason, we have defined three key categories of gross margin enhancement:

  • Cloud infrastructure cost optimization and management.
  • Vendor stack cost optimization and management.
  • Next generation FP&A tools.

Cloud infrastructure cost optimization and management

There is a constant struggle to balance stepping on the gas to improve product (i.e., raise cloud spend) and pushback from the CFO’s office when it is time to cut back.

CTOs and technical leads know how to cut cloud costs, but it can be difficult to pinpoint to what degree a certain change can negatively impact a company’s top line, not to mention the time it takes to execute reduction and optimization requests repeatedly. Companies want to continue to grow and do it rapidly, but they simply cannot allow themselves the freedom to flex their cloud spend like in past years.

Several companies are solving these problems with different focuses: Finout, Cloud Zero, Vantage and Anodot support both enterprise and middle-market end users and offer solutions to manage the cloud as well as Kubernetes. Some of these players provide solutions not only to support key cloud providers but also other cloud infrastructure vendors (such as Data Dog and Snowflake).

Other companies focus on more specific use cases. For example, Kubecost focuses on Kubernetes management. There are also companies that aim to help you cut costs: Zesty (for cloud) and Cast (for Kubernetes) fall in this space.

Q1 2023 market map: SaaS cost optimization and management by Ram Iyer originally published on TechCrunch

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Enterprise SaaS companies continue to navigate a complex economic environment

It’s been a tough time for enterprise SaaS companies. These organizations raked in profits and growth during the pandemic when offices shuttered and employees moved en masse to work from home. But as the economy turned last year and more workers returned to the office, their numbers slipped.

At the same time, enterprise SaaS companies are dealing with several other major problems that have come together to knock them off their perches.

Over the last year, TechCrunch has worked to better understand the current climate for selling software. It’s the most common startup product, and SaaS is the most common business model. So we pay special attention to leading SaaS companies on the public markets, hunting for trends, data and other pieces of information that we can apply to the private markets.

A changing economy, shifting investor expectations and other bumps have made the picture of the present-day software market hard to clarify. However, new data is sharpening our perspective.

We parsed earnings reports this week from Zoom, Salesforce, Box, Snowflake and Okta. The results were mixed, with some doing better than others. How do enterprise SaaS companies fight the short-term economic turbulence and get to the other side (whenever that may be)? And what do one quarter’s numbers actually mean in the scheme of things? Let’s dig into the data.

Economic headwinds blowing hard

Enterprise SaaS companies continue to navigate a complex economic environment by Ron Miller originally published on TechCrunch

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With 5 activists in the mix, Salesforce will report earnings Wednesday

Earnings reports come and go; for the most part, they’re a fairly routine exercise, but Wednesday’s report from Salesforce could be a little different.

That’s because the CRM leader finds itself in difficult waters with five different activist investors — Elliott Management, Starboard Value, ValueAct, Inclusive Capital and Third Point — currently operating in the company. Third Point joined the fun earlier this month.

We use the word unprecedented a lot these days, but this is truly an unusual situation, and it makes the company’s upcoming earnings call all that more critical.

The presence of so many high-profile activist investors is stealing focus from Salesforce, with questions swirling around what they may demand to wring the maximum stock value out of the company and maximize their return on investment.

In an interview with TechCrunch earlier this month, Ray Wang, founder and lead analyst at Constellation Research, didn’t pull any punches when he called firms like Elliott “vulture firms.”

“The vulture firms do not have a good understanding of the investment levels in R&D that are needed for innovation to continue, nor do they understand what level of marketing spend Salesforce needs to remain top of mind for execs,” Wang said at the time. “They don’t add any value. They come in to just make money on the arbitrage and they leave the firms more damaged than when they were before they were taken over.”

All of these firms are pushing for less spending and more profits, but that could come at the cost of a marketing budget that Wang believes is needed for a company like Salesforce to stay on top of its game.

As we approach the earnings report, what metrics will be most meaningful, and how does this all fit together with what’s been happening at Salesforce over the last six months?

With 5 activists in the mix, Salesforce will report earnings Wednesday by Ron Miller originally published on TechCrunch

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As companies shift from growth to efficiency, what does it mean for tech budgets?

It seems like, in very short order, we’ve moved away from a “growth over everything” mentality to one that focuses on operational efficiency, and this is true for startups and mature companies alike.

In truth, though, the shift probably happened slowly over time as the economy got shakier (or at least a growing belief that it was shakier) and companies decided to tighten the purse strings.

We’ve seen this play out in a number of ways. The most visible is the constant onslaught of tech layoffs in recent months, with Microsoft, Alphabet, Amazon and Salesforce all announcing big staff reductions. While the pace seems to have slowed some in February, more than 100,000 people were let go in January in a massive tech company purge.

Even though companies clearly overhired during the height of the pandemic, and there are still plenty of open tech jobs, the message is clear that cost cutting is taking precedence over growth investments.

We have even seen cloud infrastructure spending take a hit, an area that has been in constant growth mode for years. But things began to slow down in a big way at the end of last year, and AWS reported at its most recent earnings call that it was seeing growth drop into the teens in January.

As we reported at the end of the year, companies are still spending on tech, but they are looking at their expenditures much more closely. CIOs we spoke to were all taking a more controlled kind of growth, where each dollar spent is facing much more scrutiny.

They don’t want to shut the door on growth, but they want to look at things like operational efficiency and cutting back without adversely affecting the company’s core priorities.

The big question is how they do that, and do the financials suggest that they’re successfully balancing what could be seen as conflicting priorities between growth and efficiency?

What CIOs are saying

The CIOs we spoke to certainly recognize there has been a shift, and as they look at their budget priorities, they want to be smart about spending. They all said they want to look at efficiencies where it makes sense, with the understanding that the tech budget drives growth, and you don’t want to overcorrect when it comes to budgeting.

As companies shift from growth to efficiency, what does it mean for tech budgets? by Ron Miller originally published on TechCrunch

Posted on

As companies shift from growth to efficiency, what does it mean for tech budgets?

It seems like, in very short order, we’ve moved away from a “growth over everything” mentality to one that focuses on operational efficiency, and this is true for startups and mature companies alike.

In truth, though, the shift probably happened slowly over time as the economy got shakier (or at least a growing belief that it was shakier) and companies decided to tighten the purse strings.

We’ve seen this play out in a number of ways. The most visible is the constant onslaught of tech layoffs in recent months, with Microsoft, Alphabet, Amazon and Salesforce all announcing big staff reductions. While the pace seems to have slowed some in February, more than 100,000 people were let go in January in a massive tech company purge.

Even though companies clearly overhired during the height of the pandemic, and there are still plenty of open tech jobs, the message is clear that cost cutting is taking precedence over growth investments.

We have even seen cloud infrastructure spending take a hit, an area that has been in constant growth mode for years. But things began to slow down in a big way at the end of last year, and AWS reported at its most recent earnings call that it was seeing growth drop into the teens in January.

As we reported at the end of the year, companies are still spending on tech, but they are looking at their expenditures much more closely. CIOs we spoke to were all taking a more controlled kind of growth, where each dollar spent is facing much more scrutiny.

They don’t want to shut the door on growth, but they want to look at things like operational efficiency and cutting back without adversely affecting the company’s core priorities.

The big question is how they do that, and do the financials suggest that they’re successfully balancing what could be seen as conflicting priorities between growth and efficiency?

What CIOs are saying

The CIOs we spoke to certainly recognize there has been a shift, and as they look at their budget priorities, they want to be smart about spending. They all said they want to look at efficiencies where it makes sense, with the understanding that the tech budget drives growth, and you don’t want to overcorrect when it comes to budgeting.

As companies shift from growth to efficiency, what does it mean for tech budgets? by Ron Miller originally published on TechCrunch