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Software Subscription To Be Tested In This Recession?


BG2008
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This is a great interview of Gavin Baker by Patrick O Shag on his podcast Invest Like The Best

 

https://podcasts.apple.com/us/podcast/gavin-baker-investing-through-bear-market-invest-like/id1154105909?i=1000470286606

 

There is an anecdote where Gavin talks about how the sister of a friend who called their software subscription providers and got 50% price concessions within 1 hour.  Gavin talked about how subscription and cloud spend is now 50% of the IT budget versus 10% during 2008/2009.  Logically, CIO who are looking to cut IT expenses will try to negotiate lower software and cloud cost and it appears that the providers are conceding. 

 

Is anyone here experiencing that?  Is anyone calling their software/cloud providers and successfully getting price cuts?  Thanks in advance. 

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Yes. Everything is negotiable right now. and being willing to cancel is a powerful motivator. Have found asking when my contract is up in response to no discount does wonders. Esp in cases where there is 'no contract' and a competitor exists.  its like calling your cable company and asking for a discount or something.. usually you get it.  we managed to do this for a couple of diff things we get billed monthly on.. hr/payroll software and our IT services guy.. 

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Can you share specific names and subscriptions?  I am wondering if this breaks the Saas model assumptions.  They tend to be priced on a P/Rev model and it has worked wonders for shareholders.  Gavin's take is that software and cloud is now 50% of IT spend vs 10% in 08/09.  So, it is subject to price cut.  I am waiting for FB and Goog to report their earnings and see how the ad spends. 

 

On the software that you subscribe to?  Are there a competing product? How expensive are they?  I really would love to get more participation on this topic as I find some Saas models attractively price at the moment.  But if we have across the board 30% price cuts, it can really upset the apple cart. 

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I would focus very hard on how mission-critical the software is, how expensive it is, and what switching costs are. I would think some will be safer than others. For example, I cannot imagine switching off my Microsoft 365 subscription right now. Maybe I am biased as a MSFT shareholder, but it's cheap and realistically converting all my excel files to something else just is not going to happen.

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I can only speak anecdotally. I have a subscription to Adobe Photoshop at $10 a month.  I've never thought of canceling it.  Similar to Netflix, it's below the price where canceling it would have any sort of affect on my finances.  Same with Microsoft Office 365 (though that's billed once annually, not monthly).  So for me, no.  They're just too cheap relative to the large amount of value I get from them.

 

Speaking at the company level for graphics companies I've worked at (users of all Autodesk products on the Media and Entertainment side, Adobe Photoshop, Microsoft Office Suite), no, there's no talk of renegotiating payment at the moment.  The software is all mission critical with no good substitute.  Even if there were a substitute no one I know is eager to rebuild pipelines now.  That expense would defeat the purpose of saving money on the software.

 

This doesn't pertain to the current time, but I remember our purchasing agent calling Adobe looking for a price concession about a year ago, and Adobe said no. When we pushed back they suggested we use something else other than Photoshop.  We shut up and paid the bill.

 

 

Mike

 

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I think when layoffs occur, licenses get canceled. In good times, companies often forget a out these things, but in tough times, companies turn around some stones and find these savings.

I don’t know SAAS pricing well, but I think with any high gross margin product, there here are ways to negotiate. And I would think that price per seat would automatically mean less revenues when people are eliminated

 

As for GOOG or FB.I would think about advertising total being a fixed percentage of GDP - so if GDP shrinks, the advertising TAM shrinks by a similar percentage. Now GOOG and  FB may gain some market share as structural winners, but I don’t think they would be able to over come a Let say 20% GDP shrinkage without getting bit hit in revenues themselves.

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