Jason Blackman, the chief information officer at Carsales, said while some organisations had recently adopted a more cautious approach to IT investment, he considered it important to keep “backing to the right bets”.
Carsales CIO Jason Blackman says organisations will be closely watching their tech budgets.
“I don’t think there’s any slowing down. When you have these moments – recessions, etc – if you double down on your investment then you’re positioned well to grow when confidence returns,” Mr Black said.
“If you contract now you’re going to put yourself in the worst possible position in the future.”
Ben Allwood, the CIO at ASX-listed electrical products distributor IPD Group, said the company was now prioritising programs that will grow the business over more “nice-to-have” tech.
Worker shortages had led it to look at tech that can cut down on manual labour.
“It’s really hard to get people at the moment, particularly to fill customer service and warehousing roles, so we’re given extra leeway in adopting systems, particularly robotic process automation through a Microsoft stack, which helps us achieve more in a tight labour market,” Mr Allwood said.
Price hikes
Gartner said its clients have begun receiving renewal proposals from tech vendors with price increases ranging from 10 per cent to as much as 30 per cent – being blamed partly on inflation over the past six to 12 months.
These increases are substantially above the standard year-over-year 3 per cent to 5 per cent increases that organisations are used to and have budgeted for.
Luke Ellery, a senior director analyst in Gartner’s procurement, asset and vendor management team said rising interest rates and shareholder expectations for continued growth at listed tech companies had driven vendors to raise prices for existing customers.
“Money’s not free anymore. Especially for software organisations that might be owned by private equity or in the market with shareholder expectations, there’s an expectation of increasing revenue growth,” Mr Ellery said.
Gartner analyst Luke Ellery said his clients are facing big price increases during contract renewals.
”As a result, we see behaviour from vendors of increasing costs. Some of them blame it on inflation, but for a lot of them, it’s really focused on market expectations.
“In a risky environment where there is talk of a recession and people start tightening their belts, there’s less opportunity to make new sales and more opportunity for getting more money out of your existing client base.”
Enterprise software companies have not escaped the tech sell-off.
Bessemer Venture Partners Cloud Index, which tracks the performance of emerging Nasdaq-listed companies that make cloud software, is down 44 per cent year-to-date.
It’s a sharp change from the growth its backers have enjoyed for the last nine years. The basket of stocks is up more than 500 per cent since the index was created in 2013.
One high-profile price increase has come from Nuix, which increased prices by 20 per cent in the last half, the company’s chief executive said in a recent interview with the Australian Financial Review.
Elsewhere in March, Microsoft increased the price of Office 365 and Microsoft 365 bundles by 9 to 25 per cent, per user, and in April Adobe added an extra $5 to the price of each Creative Cloud for Teams license, to $US85.
Mr Ellery said the price hikes were particularly acute in the software-as-a-service category, where users are billed under a subscription model and have already spent a significant amount of time and money integrating the tools into their existing technology stack.
“It costs quite a lot of money to transition to another SaaS provider and those barriers to exit means that there’s more ability to increase prices,” he said.
“I’ve had clients where the price doubled. That’s especially true if the client got some fantastic initial deal and at renewal that price doubles each time, until they get back up to retail price.”
Mr Blackman said all of Carsales’ core technology was locked into long-term contracts, keeping prices stable. He had observed price increases in the smaller, ancillary software that’s “nice to have”, although nothing in the double digits.
“In those, we’ve seen some out-of-the-ordinary price increases, but it’s not across the board. It seems to be some vendors are bundling in or attempting to bundle a whole lot of value to justify price rise,” Mr Blackman said.
“Unfortunately for those suppliers, they’re also the ones that we can cut if it gets out of hand.”
2023 outlook
Dr. Philip Nesci, a former CIO and IBRS advisor said he had not yet seen any cost-cutting pressures and budget resets, but expected to see some of these emerge in 2023, lagging a tightening economy by about six months.
It will create another headache for CIOs, who are already grappling with projects running over time and over budget and high staff turnover.
“CIOs are struggling to deliver to business demands and are under significant pressure,” Dr Nesci said.
“This is compounded by the lack of available ICT resources and the skills shortage in the marketplace. Salaries for ICT staff are increasing, particularly in tight markets such as Canberra.
“At the same time, many CIOs are caught between legacy systems renewal, transitioning to the cloud and meeting new business demands.“
Shane Hill, principal research analyst at ADAPT cautioned against CIOs making hasty cuts to costs.
“While cost pressures actually deepen the need to realise efficiencies and retain top staff through IT investment, many tech leaders will still need to push back against CEOs and CFOs, who might not be that tech-savvy, taking a slash-and-burn approach and cutting costs wherever possible,” Mr Hill said.
