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The rising cost of business software is undermining digital transformation

Skyrocketing business software prices threaten consumer organizations’ IT budgets (Photo: CC0 Public Domain)

Rising prices for software licenses and cloud services are no longer just a problem for IT managers. The increases are big and it’s becoming a problem at the top management level, a new research report warns.

The ITAM insights 2023 analysis focuses on key industry trends expected to shape the IT landscape during the year. Among its findings are double-digit price increases for business software, significant changes in software licensing agreements between “Tier 1” vendors, and mergers and acquisitions that have a direct impact on software buyers.

The changing landscape of IT asset management

“After several large software corporations began making large price increases, this sets a precedent,” ITAM Review managing director Rich Gibbons said in announcing the report on the changing landscape of IT asset management.

It is about the price increases of Microsoft, Oracle and IBM products. But Gibbons says he also expects Adobe to increase the license fee for Acrobat Pro by 40% next month.

While the industry is under macroeconomic pressures such as rising energy prices, some of the major business technology providers are taking advantage of the current situation.

“Hyperscalers like Microsoft and Amazon talk about increased energy costs, but when the software is hosted locally, the license price doesn’t seem very tied to inflation,” commented Gibbons. “There is now a sense that suppliers are taking advantage of the macroeconomic situation.”

Rising costs during layoffs

At a time when the IT sector is making significant layoffs to reduce operating costs, leading vendors are also raising the price of the products they sell to customers. “All these IT vendors are raising prices at the same time they’re making cuts,” Gibbons said.

The analysis noted that UK and European IBM Passport Advantage customers were hit with a 24% price increase. Microsoft has announced a “harmonisation” of prices, resulting in an 11% increase for those organizations paying in euros. Oracle support saw an 8% price increase, while SAP increased support by 3.3%.

Businesses need proactive measures

In the report, Gibbons warns that rising software costs can strain users’ financial resources, disrupt budgeting accuracy and potentially limit investment in critical technology that businesses need.

“To effectively address these challenges, businesses must take proactive measures such as reviewing contracts, exploring alternatives, negotiating with suppliers, optimizing license management and engaging in strategic planning.”

One of the big price increases this year was Oracle’s changes to Java licensing, which means that Java must be licensed for every employee in the organization, not just those who use Java-based software.

“I think the days when customers blindly accepted such massive changes are coming to an end. There are third-party Java alternatives that are much more robust. It’s not just a licensing issue—it’s a business issue, because if your version of Java goes up by a few million, it can significantly impact your entire company’s digital transformation projects,” says Gibbons.

IT departments may also find that they have unused software products—a pool of unused licenses or cloud credits. “When you are building the IT architecture for a new project, you may be tempted to use them, that is, to take advantage of something that has already been purchased. But this can have long-term consequences – a detail that IT leaders need to consider,” ITAM Review advises.

Uncertain times

There is no doubt that every business relies on predictability and certainty to plan its future projects, especially when it comes to the cost part. But the last 12 months have been anything but safe.

“Even if we put political events aside, the amount of change in the IT industry itself is enough to make people in the boardroom raise their eyebrows,” Gibbons commented on the situation.

“When you’re faced with double-digit price increases now and potentially significant price increases in the near future due to seismic changes in the licensing terms of core business software, it’s no longer something that only IT managers can worry about. This is a top-management concern,” the report concludes.

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