By Gibu Mathew
As businesses move to adapt to the long-term impact of the pandemic, digital transformation and adoption of digital solutions are now of strategic importance. For many small businesses, IT spending is very much a fervent hope that these costs will create value beyond the initial spending. However, the decision-making process is often fraught with challenges and is complicated by the myriad of choices that are now available. Fortunately, there is a trend towards integrated software solutions, where various business functions are handled on a common platform. This is likely to simplify the adoption process for businesses and potentially reduce per-employee spending on IT.
Within APAC, the emerging Asia Pacific markets are expected to enjoy a 4.7 percent year-on-year surge in IT spending in 2021, to US$236 billion, according to the latest forecasts by Gartner, which projects global IT spending could hit US$3.9 trillion in 2021, an increase of 6.2 percent on 2020. This emerging Asia Pacific market category, which includes India, Indonesia, Malaysia, Thailand and others (but not China, Singapore, Australia, New Zealand or South Korea) is expected to witness an even bigger increase in IT spend in 2020, up 6.4 percent to US$251 billion, as the region’s organizations try to catch up with digital transformation in the wake of the pandemic.
How much does a company spend per employee on IT software?
The question itself is simple, but it can be surprisingly complicated to come up with a real answer. What do we consider “software” or “IT?” It’s easy to spot things like per-user subscriptions and industry-specific programs, and probably email clients or website hosting. But what about website maintenance? Do you count the salaries of anyone doing that work, and, if so, what proportion of their salary?
Besides the challenges of calculating true software/ IT cost, there are factors that can drive up per-employee spending. Some software is licensed on a per-employee basis. Some are licensed on an organizational basis, making the per-employee cost higher for a small company than for a large one. As a company keeps adding software for its different business needs, the number of licenses proliferates, along with employee logins, necessitating management and integration. With each new piece, the IT cost—the per-employee spending—increases.
With all of those pieces factored in, businesses typically spend 6-10 percent of revenue on IT. Depending on the business and its profit margins, this may have a significant impact on the bottom line.
Given these challenges, how can businesses more easily bring that cost under control?
We might consider two examples of consumer-facing companies solving similar problems for customers. In each case, the companies have created value by offering vertically integrated services that reduce direct and indirect costs while also creating efficiency.
A prime example of consumer-service integration is the rise of Super Apps in Asia. Starting with WeChat in China, other influential apps like Grab in Singapore, Go-Jek in Indonesia and Kakao in South Korea have emerged. All of these apps provide a myriad of services, from ride hailing, messaging, delivery, ticketing and even financial services all from an unified mobile interface. Often all services are funded from a common wallet, ensuring a seamless and convenient consumer experience. Once again this is an increase in value to the customer with a vertically integrated solution platform.
The question now is what business-facing software vendors can do to solve per-employee spending issues while offering value through integrated services.
We’re not yet at the point where a business can license all of its software in a single stroke, but we’re heading in that direction. Since 2018, there have been a number of high-profile acquisitions in the SaaS landscape, setting the stage for software providers to integrate new services for their existing user base. Fixed-rate integrated services can allow businesses a sort of corollary to the experience of TV streaming customer. This is a cultural shift as much as a technological shift: software vendors will need to move away from traditional pricing models to offer things like fixed per-head fees that include integration and single sign-on.
In addition to convenience, as we continue heading in this direction it will become easier to answer that seemingly-simple question: What is this business’s per-employee spending on IT software? In the meantime, it might be worth calculating and evaluating how existing software solutions are best priced to suit your business spending.
The author is the VP & GM APAC at Zoho Corp.