Ben Pippenger - Zylo - 2025 Zylo SaaS Management Index

Speaker A: Foreign.

Speaker B: Welcome to Cloud Radio. Made for full stack cloud operators. Cloud Radio covers all aspects of the business of software. So I'm excited to have Ben Pippinger, co founder of Zylo, on the show. We're going to do a deep dive into their SaaS management index. It's one of my favorite reports in SAS. I know he'll give the context on Zylo, which helps really inform why I think this is such a high signal important report that deserves even more coverage than it's gotten on a pretty popular launch this year.

Speaker A: Thanks Matt. Super excited to be here. Thanks for having me and Zylo on your podcast. Just a little quick plug for Zylo. Just so everyone knows who we are. If you're not familiar, we are a SaaS management platform. So we help organizations really get visibility to all of the different SaaS applications that they're using across their business. Once they get visibility, we help with tools that enable them to proactively manage the renewal process, get visibility, the licensing and usage information and optimize licensing and really just get their arms around putting a SaaS management program in place to govern and manage really what is now the primary mode of software delivery for the enterprise. As you mentioned, I'm one of the co founders, so we started Zyla back up in 2016. So we've been doing this for quite a while and part of one of the big things that we've done for quite a while is put out what we call our SaaS Management Index, or you'll hear me call it the SMI for short, throughout our session today. So it's an annual report we put out about this time every year. This is our seventh year of doing it, so we've been doing it for quite some time. And the cool thing about this report is it is based off of real data. So it's Based off over 8 years ish of uh, both spend and usage data. In total, it's about 40 million SAS licenses and about $40 billion in SaaS spend. So it's a lot of data that's encompassing this report to allow us to produce insights and stats and trends and things like that that we'll see. And then one other plug here is that we've been doing this for a long time. Like I said, there's some other reports out there that exist, but really I think if you look at what we're doing versus the others, it's the longest and the data sets the largest and longest running report that's out there in the market. So Something we're really proud of. And we put a lot of thought, power and perspective into this report every year. So hopefully it's helpful for all your listeners out there to get some perspective.

Speaker B: And then I think one perspective that would help for folks listening is the Zylo customer base. Is it enterprise, middle market, small business?

Speaker A: Yeah. Thanks. So SaaS can uh, be a challenge for any size of company. I mean, I think if you think about a 10 person company, there's sometimes people saying what we have all these tools, how do we manage all these really, we work with all different sizes of organizations. The report is broken out by cohorts. So as you go through, and we go through the stats here, you'll be able to see the different insights that we're bringing forward, how they're broken out into different segments. So in general we provide some averages across all the segments so you can sort of get a perspective of in total for SaaS across the board, where it sits. But we're always then breaking it down by those individual cohorts too. So you can find sort of where you fit within your organization and use this data to help set benchmarks, understand, you know, where your trends are. Maybe think about like, is this something that we should be tackling now? Is this a problem for us? All good things to be thinking about. Perfect.

Speaker B: I was thinking you were going to show off your mega logos you guys have, but we'll skip those.

Speaker A: I guess, uh, we do get the opportunity to work with some great customers. So everyone from Adobe to Salesforce to Home Depot, lots of different types of organizations. There really is no vertical that's not touched by SaaS. So it's a fun place to be because we get to work with a lot of innovative and big companies to help them solve this hard problem.

Speaker B: Awesome. Awesome. So we'll, we'll get right into the slides and uh, we got your summary takeaways here.

Speaker A: Yeah, so I was just going to start sort of with our, our point of view on this data and what this will just sort of lay the foundation and then we can go in or we will go into some of the more detailed stats that are in here. I think there's over 58 different stats in the report so I'm not, obviously not going to cover all those today. So at the end you'll be able to have a QR code that you can scan to download the report. But at the highest level, this is our point of view and our take on what we're seeing in the data. So first and foremost Is AI. So AI by no one's surprise, that adoption and spend is definitely surging. I'll bring forward a couple of stats here that just prove this point based off of what we've seen in the last 12 months. But this, you know, when we think about companies and why they should care about this, AI gives employees, gives companies, gives businesses a new way to operate more efficiently. But it does bring risk, right? It brings financial risk, which I'll share some of those numbers in here and also bring security risks that we actually we got through a survey we also ran from a lot of IT executives that provided their feedback there. So I'll bring that forward. Next is around licensing models. You know, when you think about SaaS and licensing, a lot of times you think just SEAT based. That is now changing quite a bit and licensing models are becoming more and more complex. We're seeing sort of traditional SaaS, companies like a Salesforce or like an Adobe that have been SEAT based introducing new pricing models into their existing agreements, which makes this harder and harder to manage. You think about companies that have people that are focused on those, maybe they've got an expert in Salesforce that negotiates that. But you've got now 10, 20, 30, 100 different contracts with these complex licensing models. Becomes a bigger, bigger challenge. Third sort of takeaway here is that sort of similar to number two here, that transition we're seeing is from traditional SEAT based to usage or value based pricing. I'll just use Salesforce and Adobe here as examples. So Salesforce, probably the most traditional cpace model that's out there, they sort of invented the model from a reoccurring revenue perspective. With AgentForce, their new AI agent tool, you now pay based off credits. So AI credits that you're using, you're consuming. You're basing those off of somebody initiating an action for an AI for an agent to take and you're consuming that credit. Similar with Adobe, you have generative credits that come along with the license now, so you can use those to generate images through their Firefly product. So again, just more and more complexity there and AI is really driving a lot of that. With agents where you don't have a person taking a seat anymore, you have something getting worked on on your behalf. Number four is around price now. This will be, this is a theme in the report here of the rising tide of SaaS costs. Vendors are raising prices and adjusting their pricing strategies to really help combat potentially slower growth that they're seeing in their base. We're seeing prices go up while App counts are staying fairly flat, so those prices are increasing. Licensing waste is something we've reported in this report over the course of many years, but it still remains a big problem. People are buying a lot of licenses that either never get provisioned or get provisioned that people aren't using. Your employees aren't using them. So it's a big, big challenge and we'll highlight that. And then lastly, is this just trend of IT owning less and less within organizations from a software perspective? I always have said you rewind the clock back 20 years and it, this wasn't a problem for it. They, they were responsible for going out, buying software or building software, provisioning that onto a server, patching that software, maintaining that software. They owned it. They, it was their responsibility to do that. SaaS changed the game here. It is no longer responsible for many of the apps to get bought within an organization. However, they still feel the responsibility to make sure the business is operating safe and employees are efficient. So they still have some accountability here. So it's a big problem for IT teams today. Okay, so let's jump into some of the data, as I said. So the overarching theme, the rising tide of SaaS costs, here's what those numbers look like. So we are, uh, looking across those different cohorts that I mentioned earlier, Matt, to calculate average SaaS spend. And for the first time since the pandemic, so since 2021 we saw SaaS spend rising. So year over year was an increase of 9.3% where right now across the board average SaaS spend is $49 million per year. You can see that on the next stat there, from the number of apps in inventories, it stayed relatively flat, about 275 apps on average, within inventories. And then the average cost per employee shot up quite a bit. We're at about $4,800 today for SaaS costs on a per employee basis.

Speaker B: And I think a call out there is, you know, there's been some excitement of exiting a downturn kind of amongst the vendor community, investor community. And I know when I initially shared the preview of this, when it was included in the high alpha benchmark report, which is one of your investors, right. There was a lot of excitement around there, let's say plus 9%. Now if you look at 2024 though, Gartner had the market growing in aggregate at 20%. And so the way I look at this, right, I tend to look at people and your customer base is more advanced in their IT work. They're more proactive and that is kind of an indicator of where the future might be, right, that the overall market is growing at 20% but with some governance and tools like you, the true underlying growth rate might converge to 9%. I wanted to call that out because you can look at these kind of in just an absolute sense and kind of lose sight of, you know, what this might mean in terms of SaaS under control versus everything else a little bit out of control at that 20% level.

Speaker A: Yeah, definitely. I mean that's, that is certainly a factor. You know, we're looking at data in general here that uh, people that are doing SaaS management, right, there are varying stages, their maturity and putting a SaaS management program in place isn't, you know, you just don't snap your fingers and you have it, it takes, you know, work and governance and controls and policies and all that sort of stu that plays into that. But yeah, definitely. Matt and I do have some slides at the end here that can talk about some tactics that we've seen customers do to get this under control. But yeah, thanks for going to the next slides. This actually shows the breakout here and uh, one call out. Actually let me walk through the slide. Sort of a lot to look at on the screen here. The, the top bar chart up there is those cohorts that I mentioned. So you can see the far left hand side, that's one to 500 employees. The next cohort is 500 to 2,500 2500 to 5,000, 5,000 to 10,000 and then 10,000 and up. And then the orange bars over there on the far right is that average number where you see that 49 million across the board. So I did want to call out, you know, when you look at these and you look at the 10,000 employee and up mark, you know, we've seen growth for the past two years actually within that segment. And they're attributing, you know, quite a bit of that spend across the board. So that could also be playing into maybe some of Gartner's numbers as well. But you know, we're looking, you know, holistically across a pretty broad set of cohorts of customers in order to get to our data. The chart below that then is the app count size. Again, the same cohorts that you see broken down and again calling out that larger enterprise. 10,000 employees and up number. And that's where you can see like a lot of this is pretty flat where we haven't really seen the increase in the number of apps, but the Spend has gone up and attributing that to vendor prices going up, vendors adding AI capabilities. So they're adding additional tool sets that companies are then paying for. There's some other factors we'll talk about here in a little bit are like single year contracts and things like that that we've seen also happen within the space too.

Speaker B: Yeah, this chart is awesome. Like you can look at the bottom half from the perspective if you sell SaaS. Right. Most of these large cohorts have added no apps or even 2500 is and up employees is down a good bit. So in terms of like penetrating and breaking into these accounts, it's been a hard environment regardless of some of the other positive trends in this report.

Speaker A: Totally. That's a fantastic point. I mean adding apps has not been the trend. It was definitely pandemic time because people are scrambling to add tools and enable their employees. But we saw uh, what we call the great rationalization after the pandemic and now it's sort of flatlined. So

Speaker B: we'll keep. I don't want to keep interjecting my own takes.

Speaker A: Oh, you're all good.

Speaker B: Keep this going.

Speaker A: I think your takes are great, Matt. It's good to get some additional perspective on this data. So okay, this next chart is focused on that cost per employee number. So we did see quite a Good uptick here from 3, 900 to $4,800. From 23 to 24. I did. I've seen some reports out there that says this number may be a little bit high. But like to set some context around this, you know, you think about an employee at your company that holds like an Office 365 license and then maybe holds, let's say a Salesforce license, that number already just with those two licenses approaches about 2,400 bucks within a year. So you can definitely see how that number creeps up as you start to add more and more capabilities and more tools into apps and employee needs to get their jobs done. It's increasing. It's directly in line with those overall prices going up. It's costing more to get employees the software they need to get their jobs done. So I don't imagine that that's going to probably change over the course of the next 12 months. We'll probably see either this sort of stay flat or even go up a little bit higher as companies are sort of living in this new world of these increased prices.

Speaker B: And uh, because so much of this is distant to like folks, investors, operators at startups, early stage companies of like how these large companies really work. Right. You have a theoretical understanding of how a uh, you know, a Pepsi or a Netflix buys it, but you don't really know. Right. And when I look at this, you might theorize that some of this is that your, the largest enterprises really are able to get excellent per user pricing for sure. Is that something you see kind of can kind of frame for people who might not appreciate like the magnitude of those discounts?

Speaker A: Yeah. So I think Matt, you're referring to the chart on the right there where you can see at the lower end of the market, lower company size and say lower in the market, lower. Smaller companies are paying more on a per employee basis. It is definitely tied to buying power, negotiation power of the larger enterprise. You know, when you're buying 25,000 seats, you're going to get a different price than if you're buying 100 seats or something. And so that does drive that cost down on a per user basis within the larger enterprise for sure.

Speaker B: And for folks out there, you have one of the negotiating business units, correct?

Speaker A: We do.

Speaker B: On behalf of your customer. Anything you can share from there?

Speaker A: Yeah, actually I've got a slide at the end. Uh, okay, so I will, I will.

Speaker B: I had forgotten that slide. Okay, we'll get to it.

Speaker A: I'll touch on uh, sort of when you apply negotiation really it's a lot of not just your top vendors but all your vendors like what you can expect and sort of say perfect you can think to achieve. So perfect.

Speaker B: I know people want to learn a bit more about it. Just it's emerging trend, the third party negotiation.

Speaker A: Yeah. Okay, this next graphic here in this insight is all around sort of that decentralization, the democratization of SaaS and democratization of SaaS purchasing. So as I said it is responsible for just about quarter, 26% of SaaS spend within the enterprise today and 15.9 or 16% of applications. They're really only owning 16 out of 100 applications that are being purchased within a company. So it's not a lot like you know really the, the apps that it is owning are those sort of birthright wall to wall applications that everyone gets in the business. So think you know your Google Workspace, your Microsoft 365 licensing, your Oktas, those sort of tools that the business sort of runs off of, not necessarily owning, you know, the specific tools that an apartment uses or you know, the niche tools that an individual user needs to get access to and use for their particular job or their preference of the tool they like to use. The challenging thing here, though, for CIOs and IT teams is that they're still looked at when something happens. If there is, you know, a security vulnerability that gets introduced into the business, a lot of times they're looking at the CIO to say, whose tool is this and how, why are they using it and what data do they put there? Or if there is. I was talking to CIO the other day about overages. So if you're on a consumption model and you go over, let's say, DocuSign envelopes, if you're over how many envelopes, uh, you committed to, they're looking at the CIO to say, hey, what's going on? Why don't we have visibility to this and control around this, to alert that this was going to happen? And a lot of times they're not the app owner and they're not the one that's responsible for buying that application. So they need visibility, they need to know what's going on, they need to know any potential security, financial risks that are being introduced to their business so that, uh, they're ready when those things do happen, because they, you know, they will happen. And so it's a good foundation of, we call it freedom within a framework at Zylo where you need to make sure that the business and the business line leaders have the ability to go out and get the software they need, but you need the proper controls and governance in place so the business remains safe.

Speaker B: Awesome. I don't really have anything to add.

Speaker A: Cool. I bet you all on this one. It's all around AI. So we've started tracking this, I think maybe two years ago in the report, really as AI was surging and the main players were coming out like OpenAI and ChatGPT and things, and starting to make a big impact on how work gets done. And we saw, uh, in this report this year that we saw an increase of 75.2% year over year, increase in spending on AI native apps. So AI native apps, just the way that we've defined that, are apps that are, at their core, they're designed and powered by AI. So they're really AI first. You can see examples of the ones that are up on the screen here that we're tracking. That's what that 75% is broken out into. I think the other interesting thing around the spend number is that ChatGPT is now the number two most expensed app that we tracked overall, and that's grown. I mean, that's in the last three years. It's Gone from nothing to the number two most expense app by employees. I think that's an important thing. I'll call out too. So the way that Zyla works, our primary mode of discovery is analyzing financial spend data from our customers. We look at both spend that's going through your accounts payable system that typically has a PO cut for it, that you know, there's a contract that's been signed through your proper teams and everything else. There's still challenges visibility there when because of the decentralization factor that I talked about earlier. But on the flip side we also track employee expenses. So if an employee's out, they buy something, put it on a corporate credit card or a P card and it goes through your expense system that's also tracked. So that's where this stat's coming from. This is, you know, this is bringing forward the fact that employees are out expensing subscriptions to ChatGPT, hopefully for work purposes, pushing it through and getting reimbursed

Speaker B: for those, I think like AI adds, you know, some interesting dimensions both from like a governance, a security, a uh, kind of like a freshness. Right. Like a lot of things. Everyone's gotten used to SaaS. You don't really need to think about it too much and it's, it's interesting like m, you know, we're a very small business and I have to really think about like data security in a way uh, that I don't necessarily think about with the traditional SaaS app. I just have to have my guard up. Maybe it's a lack of familiarity. Quite ironically, yesterday, just thinking through some tools we're using, I asked Chat GPT who has better data privacy? Chat GPT or Gemini? Right? And it was hilarious, right? That like, because you're really trying to think like how is this data used? It's totally different than okay, something sits in my marketing automation system. But sure, surely there are guardrails. There is zero percent chance whatever I've typed in here is going to end up somewhere else. Right? But with AI and so or the various little tools we use, some um, YouTube podcast summarizer really might be maintained by a two person company, right? And God knows what practices they have. And I can only imagine your type of customer is losing sleep at night knowing that there's this new thousands and thousands of these apps being created. I think Scott Brinker covered in his Martech report that there was 3,000 new marketing AI apps, right? And so from a IT, uh, practitioner perspective, like there, it's impossible to get your arms around this stuff. So a lot there for me, but kind of AI as it relates to, to the governance and security and, and what your practitioners and customers are seeing.

Speaker A: Well, two questions for you there, Matt. What was the response which he said

Speaker B: it was very AI, you know, where they're, they're always, they're always wordy, right? And like they kind of come across fair and balanced and you kind of have a B plus answer, but you can't, you know, so it's, it's, as always with AI, it's like you got this really enthusiastic intern, right, who went and did six hours of work. But like, did it allow me? Like, did I decide, okay, this proves Gemini is better than them? No, I, I just, at least I felt like I was playing it security for a few minutes, which I, I, I do not do enough of.

Speaker A: Yeah, that's funny. Well, I think, you know, it's, it is still wild, um, wild west when it comes to this stuff, you know, and it's, I think the risk is you think about like when it was wild, wild west with sas, which maybe it's arguing it can be sometimes, but you're probably more worried about like, do they have their SoC2 and like, are they going to get hacked and someone's going to steal their data and my data is going to be in there? While that still is a concern that people need to make sure that, you know, they're monitoring that and doing those things now you're like, okay, I put this data into this thing that's running some model that model is running off of in some other data system somewhere else. Where is that, where's my data getting pushed to? Is that system secure or not? It just, you know, it greatly impacts sort of the thinking. And you have to sort of think not just about the vendor that you're choosing, but then the vendors that your vendor chose and their vendors and everything else. Because it's all, you know, how's this all getting trained and the data is all getting processed. So it's, it's real, real concerns that we even saw. If you hit the next slide there with, uh, the survey that we ran as well. In conjunction with the data report, we also ran a survey to IT leaders. Nearly 90% of them same concerned about security risks associated with AI. You know, those 10%, I wonder who they are and what rock they're sleeping under to not be worried about it. But you know, nearly 90% of them are 68%. So this actually, this next number is from that high alpha report that you mentioned. So their report, they go out and they survey SaaS companies themselves. And part of their findings were that SaaS vendors are adding AI capabilities as core parts of their strategies to drive growth. Sort of back to the theme of this report. Around SaaS, costs are on the rise. You know, vendors are saying, yeah, that's a big part of our growth strategy. We need to put AI, uh, tools in place that come with a price, right? Come with some sort of cost to drive additional growth and value for their own business. And then I think the last bullet on here, Matt, I would love any thoughts on this too. I think, you know, we are still the starting gate for all this. Companies really are just starting to put AI tools in place en masse for their employees to use. So this is only going to become a more bigger and bigger issue as more tools add more AI, uh, capabilities. Companies need to get visibility and understand what's happening. I mean, you mentioned it for your business, but you got to think like at the large enterprise, this is going to be a, uh, big thing. It's probably a matter of time before something hits the news of some big, significant issue that happened, you know, for sure.

Speaker B: And I think like the durability of this trend. We've been doing a lot of quantitative work and also kind of macro IT work. And the theme that keeps coming up when we graph everything out, we look at historical zones, everything points to this being a 1995-2000 kind of very sustained vertical trend line. And it all makes sense. If you think about this in terms of the, you know, the automation, the roi, this is transformative. This isn't just an incremental thing. And so I can see this being very powerful. And then, you know, in lots of different contexts, like we'll talk about here also disruptive, right? Like these are new paradigms, these are just new things. And it, and it's different. That's the thing I keep coming back to with like AI, whether it's, uh, you know, how I search, how I look for information, how we, you know, extract information from our files, right? Like, this is all new. Like, and my mind has to be active, right? In a way that on the Internet, on sas, I haven't really had to like evolve or like go back to like, what exactly am I doing here or how does this thing work? There's going to be lots of, you know, downstream implications and it seems like it's going to be pretty durable.

Speaker A: Yeah, I totally believe that. I mean, I think the other thing is that it's just happening so fast and things are moving so quickly. And as an employee, as a consumer of all this stuff, I want to be doing my best possible work. So you think about your own emotional feelings around this is I want to be as effective as I possibly can be. So I want to use these tools because it's going to allow me to get more done better, faster and perform better for my, you know, for my job. And so you have that underlying force too of things are moving fast. You have employees on emotions around this. It's going to be very, very durable and I think only continue to become a bigger and bigger factor in everyone's lives. So awesome. Okay, so this, I pulled this, this chart in because I think you had mentioned this in a previous post that you made. This was actually pretty interesting. So I've actually had the opportunity to work with some of the hyperscaler marketplaces out there to, to list our own service and get things set up. And it's been really interesting to see the transition of what was previously just a place to go buy tech tools. You know, it's where you would go buy your datadogs and your snowflakes and those sort of data bricks and those tools to these marketplaces serving business applications where you can go and you can buy Zylo on there, you can buy Salesforce on AWS marketplace because the hyperscaler vendors have made it very beneficial to you doing that. You can retire your commitment credits and things like that by buying through the marketplace, which all then contributes to broader discounts on your overall cloud bills. And so we have seen that in our data, we've seen a pretty big increase in companies buying SaaS applications through the channel, through marketplaces and through resellers. So an increase of 49% for the, um, amount of spend and increase of 86% for the number of applications that are being purchased through marketplaces and through resellers.

Speaker B: And so for folks out there, like, this might happen under an AWS enterprise discount program, right, where you have this global relationship with Amazon and you have a certain amount of spend that you need to process through them.

Speaker A: Correct, correct. Yep.

Speaker B: And then when I think about like SaaS entering that, and particularly like the magnitude of the increase, like, is this a dynamic of a, like, kind of opportunistic, like, hey, we committed to 25 million, we have to hit that, or is this more of a durable, hey, it makes sense to procure all of our DocuSign, all of our Zylo through AWS going forward, and we're going to keep it there as m the alternative.

Speaker A: I'd say it's both. Right? Because, you know, you negotiate those EDPs as enterprise discount programs with the vendor directly. You're committing to a spend volume. So on one hand, that spend is already budgeted. Like if you committed $25 million, you've budgeted $25 million of spend to AWS, if that's your vendor of choice. And you can either spend that directly with them or spend through the marketplace at a certain percentage. Every vendor is a little bit different for how they manage that, so there's definitely benefit you've committed to it. The budget's there, let's spend, let's buy our software through the marketplace. On the flip side, what those marketplaces give the business is you don't have to onboard a new vendor when you do that. So you're buying through an existing vendor, you're billed by Amazon or Google or Microsoft or whoever you're buying it from. IT can streamline your procurement process, standardizes a lot of times the paper that the agreement's on. So there's intrinsic value there for the business too, to process things through. So it's really both. It makes it buying something a lot easier and then also allows you to hit your commitments, which gets you bigger discounts on your overall cloud bills as well.

Speaker B: And how is this like, impacting, like, you know, some of your core customers, like the IT asset management folks, in terms of like managing this, like, does it moving from a direct, uh, relationship to a marketplace relationship kind of create headaches for them in any way? I'm just speculating really.

Speaker A: I mean, not totally like, if they have a system like Zylo in place. It doesn't. Because really what all these vendors have is the ability to do what they call like a private offer, which essentially, like, if you were going to buy something from your vendor, you could work still with the vendor directly. You would negotiate with them. All really you're doing is then executing the agreement through the marketplace and then you're paying Amazon who then pays your vendor. And so it makes it maybe a little. If you're not on top of it, maybe you miss that something was purchased or you may lose sight of when the renewal is or something like that. But for the most part, it's really just a different way to transact. And if you've got somewhat of a program in place, you typically know what's up. So.

Speaker B: Okay, cool. It's always interesting to think about these things like where, like the downstream effects of this creates complexity elsewhere and this is a classic totally opaque thing. I know a lot of investors are interested in this and when you think about how little there is out there, particularly very valuable information like growth rates.

Speaker A: Mhm.

Speaker B: This is exactly the thing, like why your report does so well amongst our audience. So we'll move on.

Speaker A: Okay, this next slide is potentially something else that'd be really interesting for your audience as well. It's around uh, multi year commitments and this is the first time we've reported on this in this year's report and we're seeing a decrease in multi year commitments. So the benefits of doing a multi year commitment for a business is I can sign up for a three year deal with my vendor. The vendor's normally going to provide some sort of concession. If I sign up for three years, uh, maybe it's price, maybe it's legal terms or liability or whatever. If I sign up for a longer term deal. It also potentially helps with like, hey, hey, maybe this is a big deployment. We know it's going to be a commitment to get it up and going. We're not just going to sign a one year thing and you know, have to reevaluate after a single year. So it takes some of that work out of, out of the picture as well. On the vendor side, you know, the benefit is hey, I signed you for three years. Yes, I want to make you successful, but I don't negotiate a renewal for three years, which you know, isn't necessarily a bad thing per uh, se. So that's why they're willing to give some discounts and things if you do negotiate those. But all in all we've seen a Pretty big decrease, 22% decrease in multi year contracts. And that's part of the reason some of the vendor prices that we mentioned are going up across our customer base, across this data set is because there's less multi year deals. So their price has gone up a little bit. And the reason for that is that, you know, companies just don't be locked in, they don't want to sign a three year deal because who knows what the world's going to look like in three years first and foremost. And then also like what if it doesn't work? And then we're stuck with this thing. We don't want to be in that situation. So they're moving away from those longer term commitments into shorter term commitments for software.

Speaker B: Yeah. Again this is like amazing data. Particularly like the, the recency of it and then the segmentation at this scale. Right. You can see this is most prominent at 5,000 and up the decline. And I theorize, in case anyone wants to hear my takes, is that a lot of this is AI related. I would say, you know, many vendors still haven't figured out AI and so for a number of buyers, there's a lot of uncertainty in the marketplace. Like there's a few clear beneficiaries that are capturing the AI spend. But for your kind of middle of the road software vendor, AI is nowhere near solved. And so you actually just want some optionality with who you work with. This could all change and you have very limited visibility to see who's going to be good at AI. And then another thing we've seen kind of through some vendor data and some financials is particularly in areas like sales tech, there was so much over buying and that you're now coming into a cycle where people just bought too many seeds, forecasting headcount growth that didn't materialize. And then you're left with this situation of renegotiating or actually being held to a very sizable contract. And then you, you know, any CFO or procurement or CEO, you know, who's actively managing their business has to learn the lesson and in this next cycle, you know, come out of it and make some change.

Speaker A: Yeah, I mean, I think on your first point, like, you know, the whole theory that, you know, you hear, you listen to podcasts and things and even Satya Nadella said that AI is going to kill B2B SAS and things like that. Like, you know, potentially, like I could see that in the future at some point, but know, will it? I don't know, like, do you just need a data set with an AI M model and agents sitting on top of there doing all this work, like, you know, maybe in the future. But you know, I think we're a ways off before something like that potentially happens. But I mean, you never know.

Speaker B: So I agree with that. And so much of what you're buying is the outcomes, the work around the work you're not buying, the code you're buying particularly like your customer base. Right. Like what the certainty and the support. And you know, it's not just the code, it's. It's having a third party that's accountable and delivers this and also that this thing is stable. I think that's the one when people get excited about, oh, we're going to build our CRM internally. Right. Well, how are you going to keep, you know, developers maintaining a cost center product that isn't very glamorous, doesn't help their career Path Totally. You know, for the next 10 years because, oh, you know, your ERP is pretty critical. Right. And totally. Can you keep that staffed and maintained and evolved? And are you going to keep it at the same level that, you know, SAP and Oracle offer? Um, maybe not. If you're some financial institution, I wouldn't make that bet.

Speaker A: Yeah. Okay, we'll get to this next, um, one. Yeah, it's my last stat here that I've got some sort of insights on on how to get this all under control within company's own businesses. But so the first one here is around the slides. Focus on licensing waste. Like I said, this is something we reported for a long time. You can see at the large enterprise, licensing waste is a big problem. And uh, this is just the fact that people buy licenses that don't get used and huge amount of waste here and still a huge opportunity for people to take advantage of this. Where on one hand, of course, you want to make sure your employees have what they need to be successful, but you also need to make sure that if they aren't using those things that you're pulling it back and either provisioning the people that do need them or renegotiating with your vendors at the time of renewal. Because it is a lot. On average, about $21 million in annual wasted spend per organization on licensing. And you can see just over half of the IT leaders we surveyed find that models are becoming more and more complex to be able to manage, especially at scale with the number of applications that are out there. So again, this problem continues to be an issue and I don't see it, it, uh, stopping anytime soon.

Speaker B: Yeah, and over these reports each year, I've, I've seen this figure. It's always, you know, intuitively I would never guess it's this high. I would if you told me 20%, 25%. That makes a lot. It's surprising just how high this figure is. That's really my only comment there. Each year I'm surprised.

Speaker A: Yeah, I think even at the large enterprise too, you know, you think about some of these large enterprise license agreements that they get, that they do negotiate. A lot of times they come with, you know, you got to buy this many licenses to get to this level. So there, I mean, there are factors here as to business decisions that are made that can attribute to some of this waste, which, you know, you can't really do anything about. But I think the point of this is that this is still a big problem and a lot of companies aren't doing anything about this have no visibility to what's going on. And they should because waste is a big deal. And I think some of this too, like this sort of goes along with the theme of licensing models are shifting and changing, you know, going from this model into a consumption model. What does that look like you need to really do monitoring that because you could find yourself in a really bad budget busting situation if you don't have sort of the process in place to get visibility to manage that for sure. Yep. Okay. I just have a couple slides here, Matt, on how to sort of address some of these rising costs. These definitely is not. This isn't everything. This is just a couple sort of highlights of how companies are getting around doing this and things that they're doing along with some of the data from the report. So the first one here is around redundancy. We do see and we report on redundant applications within the report. You can see up at the top there, it's online training classes is the sort of the number one most redundant application that we see or category of application that we see when we do our discovery. We have our taxonomy that we apply to applications. That's how we get to this point where we say, hey, here's how many project management tools you have, here's how many collaboration tools you have. And this is a big effort that we see a lot of our customers go through is to identify, where do I have redundancy? Put a program in place to help resolve that. And that includes, you know, executive level support to say, hey, we are fixing this problem. We're going to be removing tools from our inventory, we're going to be renegotiating contracts, we're going to be moving people over to our app standards and then putting governance and policies in place as new apps are requested. We're not just going to approve new apps. We need to go back and see what we already have and can we use the tools and things that we already have purchased and have access to. So this is one key way that we see companies cutting costs.

Speaker B: And I guess I'll add my one call out, I think like uh, from a kind of like an investor or a vendor perspective, we've gone through this optimization cycle, kind of like a really good case study environment of like, what is vendor consolidation mean? And you can look at like, kind of like the most prominent examples that you guys have flagged there, like online training, project management, team collaboration. Right. All of the redundant apps. I know we had your co founder Corey on the cast two years ago and you know that that story of a vendor or a customer of yours with 50 project management apps. Like amazing that there are 50 separate project management apps that you can go buy and that to and to have all of those. But right, so there's these big offenders and it looks like eyeing the data from the peak in 2022 to now in the big offenders the cut was like a 20 to 30 cut. And so like for exposed vendors like that might be a good way to think about churn consolidation. Uh, downside risk and then in other categories that you know should be more stable and should be less redundant like GRC vulnerability management, you know the consolidation really hasn't had any impact or isn't particularly evident here. So I, I look at this as like a really good case study kind of framing what might happen in a cycle. Like a hot market transitions, what the downside case might look like.

Speaker A: Yeah, you know there's definitely cases like take the GRC example, like there you may need seven GRC tools, I don't know, you know, to monitor the different parts and pieces of the different parts of your business, locale region, types of tools. You know, that could be something that's totally acceptable for your company too. But I like your angle here of like as a SaaS business. How do I look at this and think about man? Um, I do project management. What should I think about? Because people are going to consolidate there. How should I build that into my model? Uh, to know that is a factor we have to consider.

Speaker B: And all of this always gets back to like is this a good use of time? Right. Like let's take the project management consolidation. It's like well on the other hand like these are redundant but they're you know, $12 a seat.

Speaker A: Right.

Speaker B: And is it a good use of time to download everything into a CSV from basecamp and then go recreate this team's function within asana. Right. And, and we've achieved a four dollar per user discount and we've kind of the employee experience which is a big part of your guys value proposition. That's not a good employee experience. Like Right. Recreating your project management tools and automations and reminders again to save $4 per seat, you know, type of thing.

Speaker A: Yeah, I mean, I mean cost is usually a lot of times what drives some of this stuff. And definitely you know, it's a great point like is this going to cost us more from a people and time perspective to get this all done? We also have like, you know, do employees know what tool to use? Where are all their co workers using is that tool connected into our existing systems. There's other factors at play that allow you to run a lot more efficient business if you have a core set of standard tools that you use versus everyone using something different and always trying to figure out where this stuff is. And so there's, there's factors. But to your point, cost definitely is a primary driver for doing this work.

Speaker B: And to that point about like the employee not knowing what to use, not knowing what their peers use. Like how does Zylo offer that? I believe you call it a library. And just how do you make that available for like the individual contributor to like also find the right tool within a m. Well organized system?

Speaker A: Yeah, I mean a big, a big part of like when you go through this process is you want to then put that freedom within a framework in place. Right. So that once you clean things up, you don't want to find yourself in a mess again in 18 months. And so we enable, we call it snacks called the app catalog that it's a way for you to say hey, this is my standard for this tool. I'm going to publish it to the catalog. Employees that have a place to go to say, okay, I need, I'm looking for a video editing software or whatever, whatever they're looking for, they type it in, it comes back and says hey, here's the tools that are available that you can use. And then you can sort of quickly and easily click to request access to that application and then funnel it through a workflow engine to get approvals for that. So we do, we do help with, with that because a big part of once you go through this, you don't want to again find yourself in a situation where it's the best again perfect.

Speaker B: It's again for so many folks like just kind of painting a picture of how this stuff might work at a higher end company than so many startups and investors really work at where it's just theoretical.

Speaker A: Okay, I think I got two more slides for you here. This one another way sort of tactic to control cost is around long tail spend. So long tail spend are those applications that maybe fly under the radar. They're apps that typically we see in the enterprise. There's some spread spend threshold, 100,000, 250,000, something like that that requires it to go through a different process. So maybe require procurement support. May need the onboarded different systems at that different those cost tiers. Long tail is going to be the stuff that's below that threshold usually and just doesn't have the process and things in place to manage the app successfully. And so what we did is we looked at, well, how many apps are out there that would fall into that bucket. So we looked at the lowest cost applications, uh, basically the 50 to 65% across the data set. We looked at that mark and it's between 41 and $55.5 million is what's in that long tail. So not saying that you can just go in and just slash that much money out, but that is a good place to look at and say, what are these apps? Why aren't we using maybe our core application stack that we're spending a lot of money on within our enterprise to do these things that these other tools can do? It's a little bit different take on that rationalization angle to help sort of put some dollars and potential savings opportunities around doing something with your long tail.

Speaker B: Great.

Speaker A: And then the last one here is around those negotiation savings. So Matt, as you mentioned earlier, we do have a service that we sell that's negotiation support. So we basically come in, act on um, behalf of our customer and work with their vendors to help with buying and renewing of SaaS. So that's our SaaS negotiator service up there that you see in the first bullet. So on average we see savings avoidance about 5.36% of their total SaaS spend, but some with much better returns than that, about 15%. So that translates to about 2.6 to $7.4 million in savings. So you can see the breakdown below again by those same cohorts, what those percentage looks like when you apply, not just our service, but what we will do is we'll work with your big vendors but also your long tail vendors and you start to, you start to apply some negotiation with those vendors, you know, really reading the contracts, not accepting off the shelf pricing, you know, pushing back on some things. And you can, you can achieve savings when you apply those people or resources to be able to negotiate those.

Speaker B: Awesome. This is a really good data point and it's interesting to think about too. Like at uh, the size of your customer base, right. They kind of already have a bit of a discount baked in just through their size. Right. And so that you know, as opposed to just working with you know, 200 employee and below companies, right. Who are always going to be paying full retail price. Right. And so that discounts you might see and in other things, but like you're still looking at 5, but also you're seeing a 15% on here at times too so it's very powerful because even

Speaker A: like some of those larger companies, too, they may be negotiating those big enterprise agreements with their main vendors, but there's a lot of vendors that they just don't have the manpower or the staff to be able to apply resources to them. So I guess the point of that is, like, there's still, you know, a lot of savings by doing that. So by putting a process in place to do that, there's more out there than what they're able to achieve today.

Speaker B: Awesome. You can see why I love this report, right? Like, these are, like, very unique things that, you know, don't come out in. In the wealth of, you know, kind of venture capital style benchmarking reports. Like, there's some really unique things here. Uh, marketplaces, negotiation, like, it's. It's fascinating, at least to me.

Speaker A: Yeah. Yeah. Well, thanks. So we think it's pretty fascinating, too. And, you know, we're. We're really proud of one, being able to represent this data in a way that I think is meaningful and that hopefully organizations can use to take a look at themselves and also say, hey, are we doing some of these things? What's our potential, you know, SAS footprint look like? Are there opportunities for us to, you know, to put a program in place to help manage and monitor what's going on with SaaS in our organization? So our website's up there. Also, the QR code for all those that are watching, you can scan that and quickly get over to the report. As I mentioned, a lot more insights in there, a lot of additional context and framing in the report. So definitely recommend taking a look and reaching out if you have any questions.

Speaker B: Awesome. Well, look, this has been great for our audio listeners. Uh, we'll obviously have this in the show notes, really encourage you to download it. Amazingly, we only covered a portion of, like, the full report, even though we've been doing this for 50 minutes, so I encourage you to download it. And again, Ben, thank you for making the time to go through all of this with us.

Speaker A: Yeah, of course. Matt, thanks for. Thanks for having us on. It's always, uh, always a pleasure and really appreciate it.

Speaker B: Thanks so much.