Surfing the subscription wave
High tide is in. Can you stay afloat?
I grew up near the beach under a scorching South African sun. On a blistering hot day, there was nothing better than grabbing your surf board and heading into waves. Part of the challenge was always trying to paddle past the breakers. With wave after wave hitting you, being able to stay afloat and get to calmer waters was often challenging.
Ironically, without always knowing it, companies tend to find themselves in similar positions. I am talking about multi-year subscription deals where you are buying licenses for a contractual period that is longer than a year. Often, these deals are looked in the context of that current financial year and perhaps the next.
Seldom is it looked at in the longer term which can be catastrophic, because the reality of multi-year deals is that they create a wave effect year over year. You may be still living with the residual financial impact from deals that were entered into years ago. And these can quickly add up.
If you are one of the lucky few whose budgets increase annually, then this isn’t a problem. Any layering can be accommodated. But how many of us have increasing budgets? With budgets reducing and costs increasing, you effectively become trapped between a rising tide and a lowering sky. And with multi-year deals being fixed, you are not in a position to reduce them, meaning being forced to cut in other, more controllable, areas.
I am not suggesting that increasing subscription costs are solely to blame. Other fixed cost components, including depreciation, behaves in a similar way. The net effect is the same though … a creeping tsunami of spend that you might not even fully see or appreciate until you are facing it head on.
From my experience, there are a few strategies to employ to mitigate this risk.
- Make sure you understand the terms and contracts of the cloud providers you are dealing with. Reduce lengthy term tie-ins with shorter contracts even if they may be more expensive in the short term. It would help if you could model these scenarios.
- Take a long-term view of short term purchase decisions. You can afford it now but can you afford it in the future?
- Diligently track and monitor your cloud investment. I know that this is boring and tedious work, but the cost saving or avoidance opportunities make it well worth it.
- Consider the full expected lifespan of a system rather than the actual licensing for it. If you are investing $20MM to build a Salesforce application, you are probably not going to retire it after 3 years. And if the system stays, you will probably need to have licenses for it.
Using these strategies will help you rachet down your unused or unneeded inventory of licenses more frequently due to shorter contracts and also take a longer-term view of your subscription spending reducing the likelihood of a nasty financial surprise.