Why Aren’t Companies Optimizing SaaS Like They Are Infrastructure?

Ben Pippenger: What is up, everybody? Ben Pippenger here with another episode of SaaSMe Anything. Here at Zylo, we have a multifaceted approach to our cloud spend. We are built in the cloud, so you can assume that it means it's one of our highest- expense items. We also run entirely on SaaS with no installed software or any servers that we maintain. Safe to assume that's also one of our highest expense items. We use software to get visibility to both. For infrastructure, we use a combination of our native tools provided from our cloud provider and Zesty, one of our partners, for cloud cost optimization. For SaaS, you guessed it. We use Zylo. Both strategies provide us visibility and drive significant cost savings for one of the largest expense areas of our business, the cloud. So, oftentimes, I sit here, scratch my head, and wondering why aren't all companies optimizing their SaaS just like they're optimizing their infrastructure.

Ben Pippenger: Let's dive in. First, a quick level set on cloud management. Cloud management platforms had their start back in 2011 to 2012. Some of the well- known early players include Cloudability and CloudHealth, which have both been acquired. Cloudability was acquired by Apptio, which is now IBM, and CloudHealth was acquired by VMware. Managing your cloud versus your on- premise data center was an entirely new mind shift for IT teams everywhere. This is the reason that we saw the emergence of FinOps, which we covered in an earlier episode.

Ben Pippenger: FinOps gives cloud teams a framework to think about how they're spending in the cloud to get control and to build predictability and visibility into what cloud costs look like. The result of all of this is that major cloud providers of Microsoft, Amazon, and Google have seen their cloud growth rates decrease over the last 18 months. Actually, according to Amazon's latest earnings, AWS went from a 40% growth rate in Q4 of '21 to a 12% growth rate in Q3 of this year. Now granted, that's on a$ 92 billion run rate, so I would definitely still take that, but that decrease in growth rate has been publicly attributed by the cloud providers to optimization by their customers, also known as organizations doing cloud management.

Ben Pippenger: So, let's pivot here and talk about SaaS and SaaS management. Gartner puts out a spend forecast for the cloud on a regular basis. They break their projections out across a handful of segments, the largest three being infrastructure as a service, platform as a service, and software as a service. In their latest forecast for 2024, the spend projections show that platform as a service in 2024 will hit$ 170 billion globally. Infrastructure as a service will hit$ 195 billion globally, and software as a service will hit an astounding$ 232 billion globally.

Ben Pippenger: So my question again, why aren't businesses optimizing their SaaS spend? Here's my take as to why, number one, ownership. Infrastructure as a service and platform as a service are typically owned by one person within companies, the CTO. As a single ownership, they have direct accountability into how those platforms are being used as well as the cost associated to them. Typically, nobody owns SaaS within an organization. We are starting to see some trends though across our customer base of organizations finding success with centralized IT governance of SaaS. So, hopefully, we'll be able to check that one off the list here soon.

Ben Pippenger: Next is scale. While there are many complexities to cloud, one area where it is more straightforward is that there are fewer players. There are three hyperscalers where most of the spend, most of that money, is going, Amazon, Microsoft, and Google. With SaaS, we are tracking more than 21, 000 apps across our Zy- brary, and that's growing. And you have 100s of different apps in your own portfolios, and each of those applications has different pricing structures, different licensing models, and all your relationships are different with all those different vendors.

Ben Pippenger: The third reason is organization culture. Cloud optimization is ingrained in technology and engineering teams. It's second nature for them to always be thinking about it as they're building and launching new products. With the decentralized purchasing and management of SaaS, not everyone is an expert, and it's not necessarily top of mind if you're not in IT, procurement, or SAM. As an end user, you're typically not thinking about how much does that license cost and am I using it effectively or not. Now, don't take this to mean that you should stop optimizing your cloud. Obviously, you should keep doing that. That's still important, but know that there's a huge opportunity to optimize SaaS. It may not be as straightforward, but there are easy ways to get started.

Ben Pippenger: So here's my challenge to all of you. Prioritize reigning in your SaaS spend. Start small, one step at a time, and as we've seen, SaaS spend has risen a ton over the last decade, and it's only going to increase more. If you want to get a quick breakdown of what SaaS management is and the value to your business, be sure to check out the first three episodes of SaaSMe Anything, where we lay out a plan to get started. And then, listen to interviews on our sister podcast, SaaSMe Unfiltered, to see how other companies are taking control of their SaaS. That's all for me today.

Ben Pippenger: Thanks for listening, and we will catch you next time.