The Cost and Complexity of Managing Cloud Software

Cloud-based software is a growing market. Most modern enterprises have mostly moved their software into the cloud, if not totally. Cloud migration and SaaS software bring cost, compliance, consolidation, configuration, and data security challenges. This blog discusses how SaaS-native SAM can help companies navigate the complexities of cloud software management and cost control.  

Cloud Growth
 

Cloud computing is the backbone of modern technology, with its hallmark features: speed, scalability, flexibility, and cost-efficiency. Since the first release in 2002 by Amazon Web Services of a public cloud solution, cloud investments have skyrocketed. Between 2013 and 2023, the Emerging Cloud Index rose by 524%. In 2023, worldwide end-user spending on cloud services was $561 billion, and Gartner® forecasted an increase of 20.4% to $675.4 billion in 2024.  

As various AI models become more ubiquitous and vendors continue modernizing applications with AI technology, Infrastructure-as-a-Service (IaaS) end-user spending has seen notable growth. However, the cloud dominator, SaaS, outcompetes it with an anticipated global spend of nearly $300 billion by 2025, when 85% of business apps are expected to be SaaS-based. 

“The SaaS model was thought to be only for startups and small businesses, just a fad, too closed, too slow or unstable. Today, the exponential growth of SaaS and continued improvements to functionality make it a valid option even for enterprise-level businesses.”

- Victoria Fryer, The History of SaaS: From Emerging Technology to Ubiquity 

The Complexities of Managing Cloud-Based Software  

SaaS applications account for 14% of total expenses, making their effective management vital for businesses. Additionally, 70% of IT professionals plan to renew their SaaS Management Platform by 2025. Nearly all (99%) IT professionals report encountering at least one SaaS challenge, including a lack of visibility into SaaS applications beyond IT's scope, security and compliance issues, excessive time spent on manual provisioning and management, SaaS sprawl, insufficient overview of SaaS costs, limited knowledge about employee usage, and difficulties in identifying and merging duplicate applications. These are some of the challenges organizations confront: 

Cost: In 2023, Forrester reported that 75% of companies exceeded their projected cloud budgets, with the average SaaS expenditure per employee reaching $9,643. SaaS sprawl significantly contributes to overspending and various vendor pricing changes influenced by bundling, unbundling, variable pricing, currency standardization, price restructuring, and reduced discounts. Relying on manual SaaS management can result in poor spending decisions, so automating more SaaS management processes is a priority for 23% of IT professionals by 2025. 

Consolidation: In 2024, there was a notable trend toward consolidating unused SaaS applications; however, 55% of IT professionals still face challenges with SaaS sprawl. This consolidation presents a more intricate challenge for IT departments due to employees' ever-changing tech needs and the flexible, decentralized way SaaS applications are provisioned. Enhancing scrutiny of SaaS apps before purchase can bolster consolidation efforts. Maintaining ongoing visibility of these applications is crucial to evaluating their relevance to business outcomes.   

Compliance: Compliance for on-premises applications is more straightforward than SaaS compliance, as it involves aligning the number of licenses with application installations. In contrast, SaaS compliance is more intricate and continually changing, with vendors using sophisticated licensing models such as consumption-based, feature-based, and user-based licensing. Although consumption-based licensing can reduce costs by ensuring that companies only pay for necessary features, it also increases the complexity and dynamism of contract management and maintenance. Research indicates that businesses spend an average of 385 working hours annually on SaaS contract management meetings, with 25% of IT teams reporting that they devote most of their time to managing third-party vendors, including addressing compliance and security issues.  

Configuration: Each SaaS application is hosted by a third-party vendor, each with distinct configuration settings. This responsibility falls on IT departments, who must oversee these settings for every application their users use. It's a significant challenge. 34% of IT professionals reported that maintaining consistent management of all SaaS configurations was one of their top challenges in 2024.  Security-related configurations are particularly crucial, as they can be altered by users at any time, threatening data protection, access control, and more. This introduces additional complexity and workload to SaaS management.  

Data Security: Outsourcing backend management for SaaS applications introduces data security risks. A staggering 76% of IT teams are tasked with safeguarding sensitive data within their SaaS platforms, making data breaches their primary security concern. Additionally, companies must thoroughly evaluate the security protocols of their software supply chain due to third-party hosting. This requirement will affect EU entities in compliance with the NIS2 Directive. Enhancing SaaS security is impossible without visibility into your applications. A key strategy to reduce the risk associated with SaaS applications is to employ a tool that tracks unsanctioned apps, allowing IT teams to address data security concerns and assess the configurations of their SaaS applications while fostering ongoing collaboration with security teams to monitor risk levels consistently.  

SaaS-Native Software Asset Management: A Modern Solution to a Modern Problem  

The complexities of cloud-based software are universal. Without the right tools, it’s nearly impossible for the IT department to support visibility, automation, consolidation, cost control, and risk minimization of its SaaS libraries. Many companies battle to find an appropriately modern solution for this modern challenge, with many traditional SAM tools offering limited cloud support. Innovative SAM tooling focusing on robust SaaS management is the future for companies seeking to remain competitive in an operational business context reliant on SaaS. These are the main benefits of a SaaS-native SAM tool for improving cloud software management:  

SaaS Inventory: Visibility is a recurring theme when discussing SaaS management improvements as it’s a prerequisite for tracking costs, monitoring consumption, investigating configuration, and evaluating SaaS security risks. An AI-powered SAM platform designed for the SaaS era automates visibility, providing companies a complete view of software environments.  

SaaS Cost Management: A unified SAM platform offers significant cost optimization benefits for SaaS management. With one single source of truth for software data, getting actionable insights on total software costs is fast and easy. These platforms often provide predictive analyses of cost-saving potential based on Active Usage of apps and other valuable reports for streamlining cost management and involving different stakeholders with data. 

SaaS Automation: Perhaps the most compelling benefit of a SaaS-native SAM platform is the automation that it offers with the help of AI. While it’s possible to follow up on contracts, users, configuration, costs, and all the other facets discussed, it takes so much previous time. Automation is in high demand, both in surveys of IT professionals and in trends within SAM tools. It’s estimated that the percentage of automated SaaS tasks will increase to 64% in the next 3 years. The benefits of automation are clear: it reduces the manual workload of IT professionals and frees their time for more strategic initiatives.  Companies that are not investing in SaaS-native SAM tooling are missing these critical benefits. 

Conclusion  

From its roots in cloud computing in 2002 to its dominance as the most extensive line item in end-user cloud spending worldwide, SaaS is here to stay. As innovation continues to improve SaaS management, companies that invest in smart tooling will benefit from greater visibility, improved cost management, and reduced risk across their IT environments. These benefits will come faster and easier as automation advances.  

Xensam is the world’s leading provider of AI-powered Software Asset Management with a library of 85,000 SaaS applications. Are you Interested in learning more about SaaS cost management? Check out our webinar series! 

Navigating IT Budgets - How to Link Software Expenses to Business Success >> 

Control Your Software Costs with AI-Powered Reporting >>