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Why SaaS prices are still going up when companies are spending less

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Re: Why SaaS prices are still going up when companies are spending less

#41

Post by Closi »

mozman wrote: post #13
hjhffyuu57 wrote: post #2

It would be interesting to see what the corresponding figures are like for on-prem, although they would be much more difficult to calculate and would vary wildly between companies. The only thing that really stood out to me was the Google storage price increase, which seems rather large, as in way out of line in comparison to our 2023 spend and 2024 budgeting. It would also be nice to see what exactly is meant by Saa…

I did a detailed price cost calculation of onprem vs AWS as I worked at a MSP. Our cost of compute and storage including DC construction over 10y was about half the cost of AWS. We also used cheap supermicro and had no service contracts or warranties we had on site staff. Their salaries were included. Small DC 2mw.

We also need to bear in mind that SaaS vs On Prem also often implies 'subscription' licensing vs perpetual software licensing (one off + support payments).

If a SaaS product is $100k per year (subscription) the equivalent perpetual license cost is probably $200k (one off) + $40k annual maintenance (my very rough rule of thumb after doing lots of tenders - a perpetual license is usually two years of the subscription fee plus 20% of the perpetual license cost as support fees).

Re: Why SaaS prices are still going up when companies are spending less

#42

Post by dgb23 »

activitypea wrote: post #15
throwawaysleep wrote: post #8

Price has little to do with cost. Price should be the maximum the market can afford while still beating ones competition.

Why? What do you mean by "the market can afford"?

Companies try to set prices to either maximize their profit or to bully out competitors at a net loss.

You can translate "the market can afford" to "customers are still paying".

Re: Why SaaS prices are still going up when companies are spending less

#43

Post by dilyevsky »

rglover wrote: post #37

Turns out building massive workforces on top of software business that don't require them isn't good business. The big mistake most companies made is that they applied the old-school "Fortune 500" way of company building to software businesses (i.e., bigger is better). Humorous, because the promise of software was that it reduced the need for that behavior. The end result is that they've built companies which ironica…

That is definitely the case but also a lot of those saas companies dont even have great margins and were pure zirp. That’s because they also keep building their stack like they’re in seed stage.

Re: Why SaaS prices are still going up when companies are spending less

#44

Post by mym1990 »

dboreham wrote: post #38

This is complete nonsense, right? SaaS prices have nothing to do with input costs --- prices are plucked out the air (or from somewhere else...) based on some guess about what the market might bear vs aspirations for volume. Then, once the smoke clears, you jack the price up a bit in order to buy a new boat.

I think this is called price discovery.

Re: Why SaaS prices are still going up when companies are spending less

#45

Post by api »

rglover wrote: post #37

Turns out building massive workforces on top of software business that don't require them isn't good business. The big mistake most companies made is that they applied the old-school "Fortune 500" way of company building to software businesses (i.e., bigger is better). Humorous, because the promise of software was that it reduced the need for that behavior. The end result is that they've built companies which ironica…

Zero interest rates. You raise big rounds so now you have to spend it. You raised at crazy valuations so now you need massive ARR and have to enshittify and raise prices.

The whole phenomenon of huge SaaS companies with huge prices and huge workforces seems like a zero interest rate phenomenon.

Re: Why SaaS prices are still going up when companies are spending less

#46

Post by lowbloodsugar »

steveBK123 wrote: post #31

Long term rug pull on CTOs who thought the cloud would somehow be better, easier & cheaper. CTOs get lots of free credits, downsize their infra staffing. Start using the basic building blocks, but then of the basic building blocks (servers & storage) are marked up and expensive. Next, to find cost savings their org need to move deeper and deeper into alphabet soup of cloud vendor proprietary stack, at which point the…

They aren’t talking an out PaaS like Azure or AWS. They are talking about things like Salesforce and Google Workplace.

Re: Why SaaS prices are still going up when companies are spending less

#47

Post by [deleted] »

dboreham wrote: post #38

This is complete nonsense, right? SaaS prices have nothing to do with input costs --- prices are plucked out the air (or from somewhere else...) based on some guess about what the market might bear vs aspirations for volume. Then, once the smoke clears, you jack the price up a bit in order to buy a new boat.

[deleted]

Re: Why SaaS prices are still going up when companies are spending less

#48

Post by SoftTalker »

dboreham wrote: post #38

This is complete nonsense, right? SaaS prices have nothing to do with input costs --- prices are plucked out the air (or from somewhere else...) based on some guess about what the market might bear vs aspirations for volume. Then, once the smoke clears, you jack the price up a bit in order to buy a new boat.

As TFA says, these companies know that their "all in one" cloud offerings are sticky. My employer just spent the last few years going all in on Microsoft's cloud. We use it for email, productivity suite, Teams, storage.

This was after several years of using Google's tools (though not with the same level of commitment -- we still used Office, and had Exchange and AD on premises). Google jacked their prices for Workplace so that was the motivation to move to Microsoft. I fully expect Microsoft to do the same, in another year or two, but this time around I don't think we'll change -- this time we're too invested, it would be too big a project and have too many ancillary costs.

If we had been more "all in" on Google, we probably would have just paid the increase.

Re: Why SaaS prices are still going up when companies are spending less

#49

Post by api »

steveBK123 wrote: post #31

Long term rug pull on CTOs who thought the cloud would somehow be better, easier & cheaper. CTOs get lots of free credits, downsize their infra staffing. Start using the basic building blocks, but then of the basic building blocks (servers & storage) are marked up and expensive. Next, to find cost savings their org need to move deeper and deeper into alphabet soup of cloud vendor proprietary stack, at which point the…

They’re even more locked into cloud now than it seems because not only have they shut down their in house ops but they’ve lost the skills and the work force.

Now SaaS and cloud is free to squeeze as hard as they want. The lock in is strong.

Saw this coming miles away. Nobody listened of course. This industry worships fads. When the buzz becomes “everyone is doing X” it becomes truly hard not to do it too. All your bosses, employees, investors, etc push for it.

You’re not going all cloud? What are you? Old?

Re: Why SaaS prices are still going up when companies are spending less

#50

Post by randomdata »

dboreham wrote: post #38

This is complete nonsense, right? SaaS prices have nothing to do with input costs --- prices are plucked out the air (or from somewhere else...) based on some guess about what the market might bear vs aspirations for volume. Then, once the smoke clears, you jack the price up a bit in order to buy a new boat.

> SaaS prices have nothing to do with input costs

Price always has nothing to do with input costs. That is not unique to SaaS.

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