Shadow IT these days is largely synonymous with SaaS sprawl, as organizations use and pay for both sanctioned software as well as unsanctioned SaaS apps. These are the apps that employees sign up for to quickly address a departmental problem, without going through formal company processes.
This spend can increasingly get out of hand contributing to what CloudEagle customers say is their third-largest expense: software. Currently seed-funded, CloudEagle is a Californian SaaS management and procurement platform. Analysing the data from their platform, CloudEagle has shared some insightful perspectives via their EagleEye SaaS spend report.
“Citizen SaaS” buyers are at the root of SaaS sprawl
According to CloudEagle data, the department spending the most on SaaS is the engineering group. Most of their spend is allocated to Cloud solutions such as AWS, Google Cloud, and Microsoft, which facilitate software development, data management, security, etc. This leads to the total spending on Cloud solutions being equivalent to the combined spending on all other SaaS applications. However, while engineering might spend the most on SaaS, they are not responsible for the majority of abandoned apps. That accolade goes to the Sales and Marketing department.
As CloudEagle’s founder and CEO Nidhi Jain points out there are good reasons for this:
Sales and Marketing teams often try newer “free premium” point solutions for their specific use cases. This category of tools is easier to try by individuals and teams without needing approval or access to sensitive systems e.g.: meeting recording, project management, checking grammar, etc.
Often these teams have high churn amongst the employee base, resulting in abandoned apps that the company is paying for long after the employee has left the company. Also, since no prior approval is required from the leadership or the IT team to use these tools, companies often have duplicate tools with overlapping functionality. It is very common for companies to have 3-4 project management tools, 2-3 meeting recording tools etc.
This type of spending has become typical in many organizations, and, according to data from the CloudEagle platform, over 40% of SaaS spending across companies is done by Citizen SaaS buyers, with the average spend per such buyer estimated to be over $250 per month.
Relieving SaaS bloat
Jain is clear that there are often good reasons to empower individuals to try out apps in terms of driving business innovation and agility. However, she observes from CloudEagle’s data that Citizen SaaS buyers frequently replicate the same kinds of applications that the organization is already investing in and paying for. The apps that are most commonly duplicated in this way by new employees are for project management, design, collaboration, file storage and e-signature.
She suggests that when new employees join a company, they should be given access to a directory of all the apps in use to minimize app duplication. She also thinks that teams typically opt for best-of-breed players rather than full-stack offerings to meet immediate needs, whilst IT and finance departments prefer full-stack offerings because:
The business will combine all the use cases into one application. This application may not necessarily be the best for each category, but it gets the job done at a much lower price without the hassles of integrating data. Moreover, it also means one single contract and one single payment.
At the moment finance, IT and procurement departments have multiple spreadsheets to manage cloud-native apps that they manually update. The commercial proposition of CloudEagle is that it will enable organizations to bring all the ‘spend, contract, and usage’ data onto CloudEagle.ai via built in connectors that plug into existing finance & SaaS apps to provide a real-time inventory of licenses, spend, and usage on a single dashboard. It can detect unauthorised apps as soon as a user signs in, enabling IT teams to curb SaaS sprawl in early stages.
CloudEagle’s data yields the insight that on average companies spend $1,000 to $3,500 per employee annually on software tools. Jain says this is a useful benchmark for CFOs to factor in to the cost of hiring staff, as well as helping them manage cost control over time. The platform’s data also assists customers with contract negotiation in terms of information on payment terms, usage and number of licenses.
In H1 2023 CloudEagle’s customers purchased over 300 products with CRM, specifically Salesforce, emerging as the clear leader with the most deals and highest average contract value, which will be music to the Salesforce sales and marketing team (which, of course, would never itself contribute to SaaS sprawl!)
My take
Enterprises are frequently now in a position where they need to understand the SaaS landscape that they are paying for. This is because, in a cloud-enabled world, it is typically SaaS apps where shadow IT manifests itself. This is not to say that employees should not be able to experiment with new apps, but rather that organizations need to know who is using what and why. Tools such as CloudEagle.ai enable this, and the company goes further by also offering contract negotiation advice and support.
CloudEagle has a strong management team with plenty of SaaS experience (Jain herself comes from ServiceNow) but it is not the only newcomer in this area. In Europe, CloudEagle has a competitor in the form of French Beamy.io, which completed Series A funding last year. The SaaS management area is an emerging software category that fills a growing requirement. Definitely a corner of the cloud market to watch.
