'As a service' models in technology

SaaS shapes how companies operate, from back-office procurement or payroll to automated manufacturing processes. 

In 2022, companies will use SaaS to enable operations, with productivity tools taking up the largest share of the overall software budgets for 2022, according to a report from Spiceworks Ziff Davis. 

Prioritizing productivity is a broader trend in IT: the top goal for the year ahead is improving day-to-day operations, no matter what technologies or strategies are used to get there.

SaaS buying will continue to decentralize in 2022, reorienting which leaders are doing the buying and how tools are acquired.

Here are five trends that will shape enterprise SaaS use in 2022:

1. The cloudification of everything

While cloud once lured executives with cost opportunity and scale, the bigger selling point in 2022 is around features. Cloud-based SaaS providers depend on features to compete, and customers are taking note. 

In 2022, executives will continue to "look inside the business to see what they do want to keep control of versus outsource to the cloud," said Brian Bronson, president of Americas and APAC at Capgemini Engineering. The process will direct executives toward purchasing SaaS and applications from vendors. 

As SaaS becomes more central to operations, organizations will hire more staff, investing in people who can help manage critical third-party platforms.

2. The middle buyer strategy expands

Vendors have to look beyond customer technology budgets to grasp what types of software will sell in 2022. More business units will opt to independently procure SaaS licenses as software grows more decentralized.

Four in 10 board of directors say they're shifting the digital business budget to line of business units, according to Gartner research. 

"They're doing that because they want to grow the business back faster," said David Groombridge, research VP at Gartner.

This shift will change how CIOs approach the procurement and use of SaaS tools across the organization.

"Does the CIO try and stand in the way of that? Do they try and impose or reimpose the controls that they had when the budget sat with them? That's probably not going to be possible to do: The world has moved on," said Groombridge. 

Rather, as line-of-business leaders procure SaaS, the CIO has to work to build a much more influence-led organization, according to Groombridge. "We're going to have to move from mandates to enabling the business to buy in a secure way," he said.

3. Modular software buying

SaaS vendors have long thrived on selling products in bundles. While bundles have become more customizable over time, enterprise buyer swill emphasize modularity.

"We will see more desire to buy software in a composable form and less as large monolithic applications," said Groombridge. This trend will echo in the SaaS market, leading providers to sell solutions in more flexible ways.

CIOs will need to "assess risk carefully before constructing complex application environments around multiple modular SAS components," said Groombridge. 

Though this strategy may look like a good short-term strategy when seeking composability in the enterprise, it can lead to an environment that depends on too many provider integrations, according to Groombridge.

4. The power of APIs

Business leaders will keep APIs and interoperability in mind when shopping for SaaS this year. In part, the experiences of the pandemic put this technology in the spotlight.

"Even the industries that weren't reliant on digital platforms before are suddenly realizing they can't do things the way they used to," said Brian Jackson, research director, CIO practice at Info-Tech Research Group. Businesses accelerated digital adoption as they moved in-person processes, such as signatures or other paper-based tasks, to the digital realm.

But what happens if new, unforeseen problems arise? The need for interoperability through APIs will guide SaaS decisions, as IT leaders try to design systems that can scale and adapt.

"Platforms that allow for good API integration and connectivity — they're going to be very important," Jackson said.

5. SaaS: the secret talent tool

C-suite members list access to talent among their top concerns for 2022, and SaaS tools could play a role in their response strategy.

"Top talent is going to look for places to work where they can be successful," said Marc Friedman, CEO of Cadalys. Entering the market as hot commodity, technologists will judge competing offers by looking at what companies can do to improve their efficiency — including what type of software they'll have access to and how well designed the tech stack is.

"If you are a rock star employee and you have a choice of anywhere you can go to work, you're not going to go work for the company that has created their tech stack where you have to use 33 separate applications to do your job," said Friedman.

SaaS democratized technology procurement for business leaders and, in some cases, circumvented the need for IT involvement. 

Line of business technology adoption liberates CIOs from technology minutiae, creating more bandwidth for strategy, yet compliance gaps and security concerns persist. 

Every SaaS app the business purchases — so-called "credit card applications" — can have implications for the business if no one oversees the data going in or out, said Sheila Jordan, chief digital technology officer at Honeywell, speaking during a CIO panel hosted by Protocol last week. 

Multinational conglomerate Honeywell operates in highly regulated sectors, from aerospace to performance materials. To avoid compliance issues, the company follows a global design model and the IT organization provides the capabilities the business asks for, Jordan said.

Honeywell places guardrails around the use of technology, prioritizing the "better, cheaper, faster and safer" credo while protecting the company's assets. 

The company has 42 active digital transformation programs, including an ERP consolidation, Jordan said. "Every single strategic business unit has a digital agenda and we get in the middle and help orchestrate that."

Successful shadow IT deployments operate in an environment with centralized governance, part of a clear digital enterprise strategy. Department-level technology purchases are inevitable, but technology leaders can use governance to reduce risk. 

"Shadow IT has a real negative connotation to it and I think, as technology leaders, we need to embrace what these folks are trying to do," said Chris Bedi, CIO of ServiceNow speaking on the panel.

Departments are buying technology to improve operations, he said. Technology leaders can provide the platforms for departments to build apps on, curating data sets and crafting the right governance and cyber strategy. 

"I truly think that if we do that we can let all the talent in our companies actually participate in their own digital transformation without having to come to a central organization," Bedi said. 

Application exhaust

Shadow IT is a lingering phenomenon, but the pandemic created a new era of business-led IT, where workers decided what apps they wanted to use for their jobs. 

Lines of business manage more applications than IT, accounting for more than half of all company app ownership, a Productiv report shows. Companies use an average of over 200 apps. 

"One of the silver linings of COVID[-19] is that it made the technology become very real and relevant to every single individual in the organization," Jordan said. It opened the aperture of what technology can do for business.

Line-of-business leaders are turning to data, an area where technology governance can excel. 

FedEx has a tremendous amount of data generated from operations worldwide, but it's generally a byproduct — or exhaust — of applications, CIO Rob Carter said, speaking on the panel. 

The business partners wanted data access, so technology placed guardrails around how the data is delivered, controlling what data they see form lakes and core data structures. 

Business leaders "are hungry to do real work," Carter said. "It's not our job to try and stop them, but putting the right guardrails and the right governance and management around data has been the best way to empower them and at the same time, keep [those] incredible assets safe."

Microsoft is raising the prices for SaaS solutions, including its Microsoft 365 and Office 365 bundles. With options to sign month-to-month licenses, businesses can earn a 20% discount by signing up for annual commitments. 

The month-to-month is new for Microsoft 365 subscriptions, and, "as is typical with subscription models, the annual term offers a lower rate, whereas the month-to-month subscription provides greater flexibility at a higher monthly cost."

The actual price increases for businesses will depend on licensing. Businesses have from January through March next year to receive a 5% discount on annual subscriptions. They can sign up for monthly subscriptions at an annual price from January through the end of June. 

Microsoft's increased pricing highlights the power, and stickiness, of SaaS vendors. Businesses depend on high-profile SaaS tools, like Microsoft 365, to maintain business operations. Without them, communications, collaboration and bottom-line work could grind to a halt.

It's the first significant price change for Microsoft SaaS products in a decade. It also marks a shift in the subscription model Microsoft laid out for customers, emphasizing discounts through high-tier subscriptions.

While SaaS tools are often bundled, the more value they provide, the more vendors can justify price increases, which experts believe industry will start seeing annually in the SaaS space. 

"We believe it will become the norm that SaaS pricing, the business model itself, will have expected price increases of 2% to 10% every year," said Cyndi Tackett, VP of product marketing at Flexera. "To justify that, with SaaS you get continuous value or more capabilities, more value added in."

Microsoft is not alone. Atlassian also increased prices this year, emphasizing that enterprise subscriptions can save businesses more money than standard and premium subscriptions.

For Microsoft, Teams is an example of the value-add, a free add-on that has seen widespread adoption. Teams has 115 million daily active users and large-scale adoption buoyed by the pandemic work-from-home era. 

Microsoft will change Office 365 and Microsoft 365 prices in March, though its Microsoft 365 E5 tier, its highest, will remain unaffected, according to Pax8. The cloud channel company has a rundown of the changes coming in Microsoft's New Commerce Experience, which it extended from Azure through its software stack.

"What Microsoft wants to do, is they want to keep pushing people up the ladder," said Scott Bickley, principal research director at Info-Tech Research Group. 

The largest price increase businesses will see is in the lowest tier of Office 365, the E1 license. Companies maintaining that license will see a 25% increase, whereas the E5 license will only have an 8.5% increase. 

Microsoft is going to price customers out of lower tiers, with the goal of pushing businesses to the Microsoft 365 E3 license, Bickley said.

When the world plunged into the COVID- 19 pandemic in March 2020, IT was completely unprepared to support thousands of remote and work-from-home employees overnight.

Even so, what they were able to accomplish between March and May of that year was remarkable: IT found a way to keep organizations up and running in a matter of days. 

But, with everyone working from home, this meant the tools employees relied on while in the office, like network file sharing, were not as effective when accessed from outside the corporate network. So, employees did what they have always done when IT is unable to provide them with the technology they need, they sourced it themselves.

Even though firm numbers are hard to come by, Gartner estimates content collaboration tools were the main culprit in a surge of shadow IT or rogue IT, depending on which term you prefer.

With the advent of SaaS, shadow IT in the traditional sense, where someone uses things such as personal email to get work done, is actually on the decline, Gartner said.

This is because IT has either already sanctioned a wide array of useful SaaS tools that it does not provide directly, or the business units are asking IT's permission to use a new service before they buy it.

"It's clear that we are moving away from shadow IT in the classic sense and moving into the era of business-led IT where workers are making decisions about what apps they want to use to get their job done," said Lane Severson, senior research director at Gartner. "But they are working with IT to make sure those apps are sanctioned. They aren't just buying random cloud applications and expensing them as much as they were pre-COVID[-19]."

Although he is uncomfortable with the term, the idea of business-led IT has some validity to it, said Rob Zahn, CIO at AAA of Ohio. During the pandemic, everyone was asking for IT's help. Because of that, the incidents of people using unsanctioned apps actually went down in his organization.

Cloud changed the shadow IT equation

Cloud has changed the way CIOs should think about shadow IT, said David Higgins, EMEA technical director at CyberArk, an identity and access management vendor.

The use of cloud adds layers of complexity and risk since many more privileges can be assigned to the average user. In AWS, for example, any user can be assigned upwards of 7,000 different entitlements, he said.

"What we've also seen in our own research is a different term that we're using," he said. "It's not just shadow IT but also this term of 'shadow admin,' which is a consequence of digital transformation and consuming more cloud-based services."

Shadow IT was once solely the domain of sophisticated super-users who had the technical acumen to set up and run infrastructure and applications without IT knowing about. Then came cloud apps like email and file storage solutions that people began to casually use to move files around — again, without IT knowing about it. Both of these are instances of rogue IT. 

The former is more common in application development environments and in areas of the organization where a needed tool is too expensive. People will often adopt an open source version to get their jobs done, said Sophat Chev, chief advisor, Security at ConvergeOne, an IT services provider.

"Your biggest hurdle and challenge is going to be accepting what the end user needs as a way of maintaining their contribution to the business," he said.

Business people are more likely to get IT involved early if they believe IT is there to help, not shut them down, according to Lane. "The rogue IT element is mostly still folks trying to get their job done and feeling like working with IT is going to take too long or won't work for their specific solution," he said. 

What this means for the CIO and CISO

Managing rogue IT is a challenge for CIOs and CISOs for a number of reasons: they don't know what they don't know, cloud providers are savvier than ever at selling directly to end users, and the tools for uncovering shadow IT are not 100% effective.

One-third of companies in the U.S. today are doing an adequate job of keeping rogue IT under control, according to a survey from ManageEngine. But the likelihood of getting shadow IT 100% under IT control is lower than ever, given the ease with which technology can be purchased today and the amount of high-quality freemium apps available. 

Aside from running network scanning software and tracking expenses at the departmental level to uncover as many unknown applications and services as possible, Zahn recommends rediscovering the art of communication. Talk to your peers in the organization. Find out what technology they currently run, what they'd like to be running, what their problems are, and the potential technology needs of any projects they are working on.

When CIOs strive to become effective communicators instead of order takers, they will be in a better position to act as guides; helping the organization's leaders make good technology decisions that avoid unnecessary risk, add to technical debt, or create application and infrastructure redundancies.

"The CIO, more than ever, just needs to be out among his peers talking to them on a regular basis," he said, "so that you're keeping aware of the type of things that they're doing, forming that relationship."

Lines of business are managing more enterprise applications than IT, accounting for 56% of all company app ownership and management, up from 4% year over year, according to a report from Productiv. The company compiled and analyzed data on 30,000 applications used by 190 companies.

Most departments use between 40 and 60 different applications, the report found. Companywide, departments use an average of over 200 apps. Security, engineering and IT departments lead the pack using the most apps, on average.

Applications bought and managed by departments enjoy higher average engagement rates than apps provisioned directly by IT departments, according to the company's analysis.

Tech leadership is experiencing a shadow IT paradox. Apps bought directly by the units that will use them have higher engagement rates than those handed down by IT, but the spread of sticky business applications can come at a financial and security cost.

"Every SaaS purchase outside of IT has the potential to expand a company’s security risk surface and can also drastically impact business spend, whether the CIO sees the bill or not," said Jody Shapiro, CEO and co-founder of Productiv, in an email. 

Three-quarters of IT leaders say security is their top concern regarding SaaS sprawl, according to a survey published by Zluri and Pulse. Compliance (58%), costs (57%) and shadow IT (57%) follow as the main areas of concern, the survey found.

Financial consequences await businesses dealing with the unregulated use of enterprise apps. Companies with large tool sets outside of IT control deal with unregulated SaaS budgets, as well as higher ownership costs due to missed renewals, Shapiro said. 

But shadow IT can lead to data exposure. Six in 10 workers admit to using unauthorized apps daily or weekly to share files with colleagues, according to the Ponemon Institute.

Business users frustrated by a growing tech project backlog often turn to deploying solutions without IT oversight. Rather than wait for in-house applications to be ready for use, business units pick up off-the-shelf software for a quicker solution.

To solve for SaaS sprawl, companies can start by regularly auditing every SaaS app used across the business, Shapiro said. Once businesses understand the SaaS tools used, the next step is to evaluate costs associated with each app and user behaviors.

Nearly one-third, 29%, of SaaS software spend is underutilized or wasted, according to Flexera's State of ITAM 2022 report released Thursday. The company surveyed 465 global IT professionals at companies with 1,000 or more employees.

Companies also struggle to manage desktop software, with employees estimating 31% of their spend in this category is either underutilized or wasted, according to the report.

One-third of IT asset management teams say they currently track SaaS usage, but almost half of respondents plan to start tracking SaaS usage. The majority of respondents saying their main priority is responding to audits.

Unseen SaaS spend can chip away at a company's IT budget, bloating costs for even the most modern, digital enterprise. The balance for CIOs is to outfit workers with the tools while keeping spend under control.

What that balance looks like will look different across organizations. But companies frequently grapple with cost drain from mismatched SaaS spend. And total waste is probably larger than what businesses estimate, according to Brian Adler, senior director of cloud market strategy at Flexera.

As companies rely more on digital tools, software use "is growing even faster and more dynamically," than before, Adler said.

Software sprawl across the organization is part of what's complicating SaaS spend management. With more parties across the enterprise trialing and purchasing vendor solutions to meet their needs, software spend can veer off from company oversight.

More than one-quarter of companies expect the number of people involved in software purchasing decisions to increase in 2022, one report found.

Proper planning can guide companies away from overspend, according to Adler. Companies need to "stop the panic-buying" of software solutions and right-size the subscriptions for their users "based on who's actually using the modules," said Adler.

But over-correcting on software spend can also be detrimental to companies. Organizations with top digital performance reap benefits from higher technology spend, including cutting back on general and administrative costs, according to research from The Hackett Group.

Employee experience is another factor to consider, particularly considering tool choice is a top priority for younger generations of employees.

"You need to make sure that the target audience is getting access to the bits of that bundle that they need," said Adler.

Boosted by demand in service-based models, companies in the tech industry added close to 26,800 workers to their ranks in August, according to a review of U.S. Bureau of Labor Statistics (BLS) data from IT trade group CompTIA.

The uptick in hiring marks the largest monthly gain in tech industry jobs since November 2018, CompTIA found. The industry has added 120,000 positions year to date.

Unemployment among technology occupations remains well below the national average. While unemployment among IT occupations was at 1.5% last month, national unemployment fell slightly to 5.2%, from 5.4% the previous month.

If software rules the business world, as Marc Andreessen proposed a decade ago, the need for technologists has nowhere to go but up. The impact of software across industry has benefited tech companies, delivering massive growth for software providers.

The tech industry is on the upswing, boosted by the widespread adoption of service-based models. Ease of deployment and familiarity with the paradigm lead to compounding growth in multiple verticals, including cloud and software bundles. 

"The broader macro trend is the ongoing shift towards the intersection of hardware, infrastructure, software and data, which is then delivered via some form of an 'as-a-service' model," said Tim Herbert, executive vice president for research and market intelligence at CompTIA, in an email.

That said, market conditions still apply — and tech hiring across other areas of business responds to the ebb and flow of industry. Tech job numbers across all industries contracted by 334,000 positions in August, a trend that could be reflecting the industry impacts of a Delta variant surge.

"Many labor market commenters cited the Delta variant as contributing to the disappointing jobs report (at least nationally), so it is a factor, but difficult to determine the net effect in tech hiring in the short-term," Herbert said.

While unemployment in tech positions remains considerably low, employers are still struggling to retain workers. More than nine in 10 executives from the technology, media and telecom industries say attrition levels are higher than usual, according to PwC data.

It's a tight labor market for tech talent overall, and experts suggest upskilling or retraining the existing workforce could have positive effects on a company's ability to keep up with demand.