Software spending pressure is decreasing, they indicate new data from Battery Ventures. In its venture capital firm's survey of enterprise firms with 100 senior leaders with annual IT spending of around $35 billion, contract approval timelines are no longer getting longer and the focus on cutting spending on SaaS overall is fading.
For startups selling software, the market may be stabilizing.
However, the same data set indicates that upward growth – a key method for startups to sell to larger customers – is under increasing pressure. Selling to an individual, then a team, and perhaps eventually an entire company is one way smaller companies can land large, lucrative accounts. But the path for such sales could be narrowing, according to Battery.
The bottom-up sales approach often seen during the pandemic had a big impact, and product-led growth in general became hot terms. But like many things that became big during the pandemic and the resulting economic disruption, what goes up inevitably comes down.
Digging deeper into Battery's data on upselling, there are a few additional notes or details. The trick is that if you sell tools or solutions related to AI, this year will probably be a better year than other friendly vendors with non-AI products.
Until the end!
For a long time, developers used to have the freedom to choose the software solutions they wanted to use, especially if they chose them for testing purposes. That activity was a Trojan horse for B2B startups that could then call up developers' bosses to get deals for their software across the organization. But that route appears to be closing.
According to the survey, the percentage of respondents who allowed their engineers to select their own tools fell from 74% in the third quarter of 2023 to 44% last quarter.
It makes sense that companies want to strengthen their software options. There is a cost aspect, of course, but the expansion of decentralized software is simply too difficult to manage. The rise of platform engineering is a response to this expansion; Instead of each developer creating their own set of tools, they can use the tools that the platform engineering team selected for the organization.
Cost is not the only factor. It's not just in the current economic environment that companies are making sure their developers don't sign up for more tools than they'd like. According to Battery, “respondents indicated that they will continue to strengthen developer self-acquisition in the development/testing environment.”
The survey has some nuances, as respondents "seem less likely to control spending in the production environment." But only a fraction of companies (7% last quarter) allow developers to self-select the tools used in production.
Whether in production or testing, the new normal is for companies to tighten their control over self-procurement. This is a trend that has been going on for several years now, but it also reflects the broader attitude of business buyers when it comes to spending.
yes, but
The proportion of large IT buyers who are loosening their belts is small. When asked how economic conditions are affecting their technology spending, 3% of respondents in the first quarter of 2023 said they were becoming less conservative. That figure doubled to 6% in the second quarter, a figure dwarfed by the 38% of respondents who reported no change and the 56% of respondents who said they are acting more conservatively.
Progress is inevitable, but it may take a while to appear. In terms of budget planning, 53% of CXOs surveyed expect their technology budget to expand. That's up from 46% in the first quarter of 2023. But the most important thing is that half (49%) actually predict growth of 0% to 10%, up from 40% in the first quarter. The number of CXOs expecting stable growth fell during the same period. While the number of CXOs expecting a 0% to 10% decrease in their technology spending remained stable quarter over quarter, the overall mix of budget anticipation appears to be improving.
Part of the reason for the modest improvements is declining expectations that the CXOs Battery spoke to can reduce SaaS spending. In Q2023 34, the venture firm saw a “SaaS license optimization drop” of XNUMX%, which it believes indicates that “buyers now have a better handle on runaway spending.” Our previous notes on companies that stopped allowing employees to choose their own tools likely play a role in the change in sentiment.
Still, with budget expectations rising and SaaS spending slowing, we would rate the enterprise IT spending market as alive and very active, even if upselling remains difficult for the foreseeable future.
