2023: The year of the price hike?

SaaS Buying

Software budgets are growing in 2023 — but that growth may be consumed by price hikes from large software companies.

Vendr | Managing the price-hike of software in 2023
Written by
Ryan Neu
Published on
February 1, 2023
Read Time

Vendr | TwitterFacebook iconVendr | LinkedIn

Software startups — prepare for a mixed bag of good and bad news in 2023. On the positive side, software budgets are expected to increase by 11.3 percent, according to Gartner. However, just because the budget grows doesn’t mean you’ll have access to it.

In 2023, it’s possible that the largest software companies will consume budget growth, with little leftover for startups. To understand this, we must first understand the pecking order of software.

The software budget pecking order

In software, a few large companies always eat first — think AWS, Google, LinkedIn, etc. These are the mission-critical providers that tend to be sticky. They are hard to churn away from and tend to have few viable alternatives. How will the top software companies react to a hardening economic climate? While they can’t control the economy, they can control their price.

If Google raised its price, would you churn and go somewhere else? Or would you bite the bullet, pay the bill and cut something else? Bingo. The top software companies know they’re sticky.

So, if the economy gets worse, we expect 2023 to become the year of the price hike for the top software companies. This means less budget for you. Let’s dig in.

Declining share of wallet for top software companies

To predict the recipients of the software budget, we first need to understand where the money has historically flowed. To do so, we look at the share of wallet across Vendr’s database of $2B+ software purchases.

In 2021, the top 10 sellers earned a 29.46 percent share of wallet. This means that for every $1 spent on Vendr’s platform, $0.30 went to a top ten software company.

Here are the top 10 software companies, in 2021, by share of wallet:

Vendr | 2021 Share of Wallet

But in 2022, we noticed a shift in the share of wallet – outside of the top ten companies.

Year-over-year, share of wallet for the top ten software companies declined by 9.23 percent to 26.74 percent. This means the biggest players received less budget allocation, allowing more dollars to flow to startups.

Here are the top 10 software companies, in 2022, by share of wallet:

Vendr | 2022 Share of Wallet

On Vendr’s platform, companies like Datadog and Salesforce increased share of wallet YoY, by 1.22 percent and 1.58 percent, respectively. Meanwhile, Google and LinkedIn lost share of wallet YoY by -3.98 percent and -1.77 percent, respectively. AWS, perhaps the most resiliently, remained steady at the top with a ~6 percent share of wallet.

Prediction: 2023 becomes the year of the price hike

We predict that 2023 will become the year of the price hike, most notably within the top sellers with a declining share of wallet. Why? Someone has to foot the bill of higher costs incurred by inflation plus a declining share of wallet.

And the top companies can get away with it. They have the stickiest products, the most market share, and the least viable competition.

Perhaps oversimplified, but one way to predict the severity of the price hike is to monitor the impact of inflation coupled with the loss of market share.

For example, 6.5 percent inflation + 2 percent loss of market share = 8.5 percent price hike.

What does this mean for you? Even though software budgets may go up, they may not reach your pockets. If the top software companies begin raising prices, get ready to fight for every dollar.

There’s a pecking order in software, and those at the top eat first.

{{cta1}}

Ryan Neu
CEO
Ryan Neu is the CEO and founder of Vendr, which is focused on connecting SaaS buyers and sellers through unique experiences. Ryan founded Vendr after participating in the Y Combinator startup accelerator, leveraging his extensive experience in the SaaS industry from his prior roles at HubSpot and InVision. With a strong vision and passion for innovation and customer satisfaction, Ryan has guided Vendr to become a leading player in the SaaS space.

Similar posts

Learn more about finding, buying and managing your SaaS stack with resources from our experts.

Eight examples of effective purchasing strategies

Taylor Bruneaux

SaaS Buying

Eight examples of effective purchasing strategies

Learn what a purchasing strategy is (it’s not a process), and discover eight strategies you can implement today to guide buying decisions.

Read post
What is maverick buying, and how to stop it

Danielle Nathanson

SaaS Buying

What is maverick buying, and how to stop it

Learn what maverick buying looks like and discover five powerful approaches for tackling out-of-policy purchasing to improve your spend management practices.

Read post
Eight best negotiation tactics from the “Spend smarter workshop”

Lauren Sawyer

SaaS Buying

Eight best negotiation tactics from the “Spend smarter workshop”

Vendr's senior and principal SaaS consultants share top tips, from looping in a champion to understanding the benefits of early renewals and the risks of auto-renewals.

Read post