Business-Software Companies Say Customers Are Pulling Back Amid Economic Concerns (wsj.com) 20
Business-software companies say customers are being more cautious with their spending in response to a challenging economy, adding to the tech industry's list of concerns. From a report: Customers for companies such as Salesforce, Okta and CrowdStrike are taking longer to sign deals, and in some cases slowing their hiring plans as they try to protect their bottom lines, the software providers reported this past week. That trend has created a cloudy outlook for many in the once-booming business-software sector, which benefited from years of demand as customers looked to use the products to trim costs and maintain their businesses during the pandemic.
"Certainly, the buyer environment has changed out there in the market. It's become more measured," Brian Millham, chief operating officer at Salesforce, said on an analyst call. Salesforce didn't provide a revenue forecast for the next fiscal year, as it often does around this time, with Chief Financial Officer Amy Weaver pointing to the "very unpredictable macro environment." Salesforce said its business customers are adopting behaviors typically seen in an economic downturn, such as laying off workers, delaying hiring and slashing expenses in areas such as marketing. The San Francisco-based company, one of the largest vendors of customer-relationship-management software, said Wednesday that its clients in the tech, consumer-goods and retail sectors were pressured in the recent quarter, while the travel, hospitality and manufacturing sectors were among those showing more resiliency.
"Certainly, the buyer environment has changed out there in the market. It's become more measured," Brian Millham, chief operating officer at Salesforce, said on an analyst call. Salesforce didn't provide a revenue forecast for the next fiscal year, as it often does around this time, with Chief Financial Officer Amy Weaver pointing to the "very unpredictable macro environment." Salesforce said its business customers are adopting behaviors typically seen in an economic downturn, such as laying off workers, delaying hiring and slashing expenses in areas such as marketing. The San Francisco-based company, one of the largest vendors of customer-relationship-management software, said Wednesday that its clients in the tech, consumer-goods and retail sectors were pressured in the recent quarter, while the travel, hospitality and manufacturing sectors were among those showing more resiliency.
It's interest rates. (Score:5, Interesting)
A lot of places were spending like no tomorrow when the prime rate was zero or even negative. As long as they've got the rate locked in low enough, they may have been justified in doing so. But it would require more than a shot in the dark to justify borrowing money today. Alas, that's an inevitable consequence of using a hammer (interest rate) to attack a screw (inflation).
Re: (Score:2)
I didn't say it was necessarily a good idea before, just that the risk was lower when they were able to borrow money really cheap as opposed to the Twitter leverage where they're on the hook for a billion dollars of interest after the first year. Now even the most optimistic projections don't favor borrowing and speculating. This also means that even businesses that do have cash reserves are sitting on the money to make sure they don't have to use lines of credit. Less intrusive advertising may be a silver
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I didn't say it was necessarily a good idea before, just that the risk was lower when they were able to borrow money really cheap as opposed to the Twitter leverage where they're on the hook for a billion dollars of interest after the first year. Now even the most optimistic projections don't favor borrowing and speculating. This also means that even businesses that do have cash reserves are sitting on the money to make sure they don't have to use lines of credit. Less intrusive advertising may be a silver lining to this cloud. It takes financial motivation to continue the advertisers vs. browsers escalation. Then again Alphabet may still have such a motivation because they have their fingers in so many pies.
Businesses when interest rates were non-existent: we can do this, we can borrow the money it's so cheap! Let's do it! and not touch our cash reserves.
Businesses when interest rates are higher: we can't do anything, and we have to protect our cash reserves.
Is it possible that many businesses are simply dragons?
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In my D&D setting, I have given green dragons the ability to polymorph into humanoid form, like silver dragons. It requires genetic editing by splicing with yuan-ti eggs, so such a dragon has to be created intentionally, but it turns out they have been running the mafia for a couple centuries. At first it was just a handful, all on one planet. Now it's practically every inhabited planet in the Prime Material Plane.
Silver dragons are too conservative to borrow and speculate, but the greens do it. All. Th
My company (Score:3)
Re:My company (Score:4, Interesting)
We're putting an accounting software upgrade on hold, and will stick with the five year old version. Since we don't need payroll (that's done through a payroll company), the only real advantages are bug fixes and security patches, and since the whole thing is sitting on a firewall internal network, while there is some concern, it isn't so great that we are now prepared not only to spend thousands on an upgrade, but even worse, an upgrade to "cloud" accounting, which we would have to promptly disable because our government contracts straight out forbid us to store certain data on any server outside of Canada, and very few cloud providers of any note can actually fully 100% guarantee that the data won't end up on a US server at some point. But mainly it's just the cost.
The other thing I've noticed is that salespeople are becoming a LOT more high pressure. We were inquiring about signing up our branch offices for a document shredding service we use, and while our Office Manager was away, her assistant suddenly got a contract just awaiting the Office Manager's signature, as if we had actually agreed. Heck, we had the same thing happen with the telco the serves two of the branch offices, who sent a contract to sign up the main office as well, when what we were actually trying to do was sort out some static IP provisioning issues we were having at the branches. So within a couple of weeks we have two unsolicited contracts sent to us.
Oh, and the accounting software provider is harassing us a couple of times a week. I think a lot of vendors are getting very spooked that the recession is a given, and they want to lock in contracts now.
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I've seen people try to run a smallish company through Excel. It gets ugly pretty damned fast, and usually collapses at the point someone says "So how do you do a bank rec?"
the cloud can really add up and need to buy top (Score:2)
the cloud can really add up and need to buy top level service on some places just to do X can cost big.
also it does not help that you can't just pay for top level for some users but no you need pay for top level on all users.
Re: the cloud can really add up and need to buy to (Score:2)
And it's always an on going cost. Unlike standalone software where you can choose to hold off upgrading. If you want to choose to put your SaaS on hold you kill your access to the software.
Licensing (Score:4, Insightful)
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Yeah, but you were in the same position with, e.g., Oracle, even before SaaS. You don't buy business software the same way you buy videogames.
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As someone else already stated, companies already had long term licensing agreements with non SaaS software. And at the corporate level, hardware gets deprecated too and needs be bought again (causing ongoing costs).
There is still a level of being fed up with costs though. Companies are starting to realize they aren't seeing as much savings as they expected, and often are spending much more. This won't halt their SaaS / Cloud spending full stop, but they will start to question future projects a bit more. It
SAAS costs (Score:5, Interesting)
My licensing costs have increased dramatically year over year for the past several years. While we expect modest increases every year, I had one contract ask for a 30% increase over last year. I think these companies are so used to sucking from the teat of vendor lock-in that they're starting to be surprised when the milk starts to run dry.
subscription model (Score:2)
Lots of software that is not SaaS has moved to a subscription model. It is very rare to find something like a perpetual license in 2022. Software subscription costs have been the number one IT cost where I work for the last few years. Seems hard to run a business in 2022 without tithing to software rapists.
Expensive (Score:2)
The word is that most of this software is quite expensive, they seem to have expected the market to grow forever. Salesforce just laid off a bunch of people. Their product does a lot of stuff, but it's not particularly nice to use on any level and the documentation is agonizingly bad. I'm not surprised it's a hard sell right now.