Green alert: SaaS giants may use sustainability to justify price hikes
Which should make you see red because using renewable energy is supposed to cut their costs
SaaS vendors plan to hike prices by between 15 and 20 percent in the next three years, and one of the justifications they’ll use is the cost of their environmental sustainability programs – despite expectations that those efforts would lower their costs.
So says analyst firm Gartner, which last week published a document, titled “3 Reasons Why SaaS Vendors Are Raising Prices and What You Can Do About It," which The Register has obtained.
The document notes that sustainability regulations are likely to be introduced worldwide, so buyers will prefer SaaS vendors that are compliant.
“Such a leading position means [SaaS vendors] can, and will in some cases, charge more,” Gartner suggests.
But the analyst outfit thinks charging more for the cost of sustainable ops may not reflect actual costs, with the following argument:
Vendors may justify this premium cost with the cost of running or using green data centers (those run with renewable energy and using energy-efficient technologies). However, these data centers are designed to be more efficient, ultimately lowering costs.
Gartner therefore recommends SaaS subscribers probe vendors’ sustainability claims to detect “greenwashing,” and quotes a European Commission study that found 42 percent of statements about sustainability practices on consumer goods companies’ websites “were exaggerated, false or deceptive, and could qualify as unfair commercial practices under EU rules.”
Another justification SaaS providers will offer for price rises is inflation, which has been on the rise around the world. Gartner advises checking the local rate of inflation, though, against SaaS price rises to make sure you're not being cheated.
The third reason Gartner believes SaaS vendors will hike prices is the cost of labor, a problem caused in part by Russia’s illegal invasion of Ukraine as that has diminished the global pool of tech talent by four to five percent.
SaaS providers are therefore paying more, and paying bonuses, to keep or attract staff. But so is everyone else, meaning professional services are also getting more expensive.
If a SaaS vendor tells you they have to raise prices to cover increased labor costs, Gartner believes “it is reasonable and essential to push them for transparency.”
Asking vendors if they’re automating work may also help you to find a supplier less vulnerable to rising labor costs.
And negotiating license refreshes early is another important tactic, as many SaaS licences include auto-renewals with 30 or 90 days' warning. ®