By Gibu Mathew, Vice President and General Manager, APAC, Zoho Corp.
As businesses move to adapt to the long-term impact of the pandemic, digital transformation and adoption of digital solutions are now of strategic importance. For many small businesses, IT spending is very much a fervent hope that these costs will create value beyond the initial spending.
However, the decision-making process is often fraught with challenges and is complicated by the myriad of choices that are now available. Fortunately, there is a trend toward integrated software solutions, where various business functions are handled on a common platform. This is likely to simplify the adoption process for businesses and potentially reduce per-employee spending on IT.
Within APAC, the emerging markets are expected to enjoy a 4.7% year-on-year surge in IT spending in 2021, to $236 billion, according to the latest forecasts by Gartner, which projects global IT spending could hit $3.9 trillion in 2021, an increase of 6.2% on 2020. This emerging APAC market category, which includes India, Indonesia, Malaysia, Thailand, and others (but not China, Singapore, Australia, New Zealand, or South Korea) is expected to witness an even bigger increase in IT spend in 2020, up 6.4% to $251 billion, as the region’s organizations try to catch up with digital transformation in the wake of the pandemic.
How much does a company spend per employee on IT software?
The question itself is simple, but it can be surprisingly complicated to come up with a real answer. What do we consider “software” or “IT?” It’s easy to spot things like per-user subscriptions and industry-specific programs, and probably email clients or website hosting. But what about website maintenance? Do you count the salaries of anyone doing that work, and, if so, what proportion of their salary?
Besides the challenges of calculating true software/ IT costs, there are factors that can drive up per-employee spending. Some software is licensed on a per-employee basis. Some are licensed on an organizational basis, making the per-employee cost higher for a small company than for a large one. As a company keeps adding software for its different business needs, the number of licenses proliferates, along with employee logins, necessitating management and integration. With each new piece, the IT cost — the per-employee spending — increases.
With all of those pieces factored in, businesses typically spend 6%-10% of revenue on IT. Depending on the business and its profit margins, this may have a significant impact on the bottom line.
Given these challenges, how can businesses more easily bring that cost under control?
We might consider two examples of consumer-facing companies solving similar problems for customers. In each case, the companies have created value by offering vertically integrated services that reduce direct and indirect costs while also creating efficiency.
A prime example of consumer-service integration is the rise of Super Apps in Asia. Starting with WeChat in China, other influential apps like Grab in Singapore, Go-Jek in Indonesia, and Kakao in South Korea have emerged. All of these apps provide a myriad of services, from ride-hailing, messaging, delivery, ticketing, and even financial services all from a unified mobile interface. Often all services are funded from a common wallet, ensuring a seamless and convenient consumer experience. Once again this is an increase in value to the customer with a vertically integrated solution platform.
The question now is what business-facing software vendors can do to solve per-employee spending issues while offering value through integrated services.
We’re not yet at the point where a business can license all of its software in a single stroke, but we’re heading in that direction. Since 2018, there have been a number of high-profile acquisitions in the SaaS landscape, setting the stage for software providers to integrate new services for their existing user base. Fixed-rate integrated services can allow businesses a sort of corollary to the experience of TV streaming customer. This is a cultural shift as much as a technological shift: software vendors will need to move away from traditional pricing models to offer things like fixed per-head fees that include integration and single sign-on.
Perhaps foreshadowing this trend, Zoho launched Zoho One in 2017, allowing businesses to access a broad set of Zoho applications to run their business with a single sign-on. Zoho One launched with 35 applications included in the suite and has expanded to include more than 45 applications today. Zoho is positioned to provide an integrated experience as all applications are developed by Zoho, creating a seamless user experience. Besides ease of use, integration significantly reduces the hidden project management costs that companies usually incur when managing otherwise non-integrated vendors, this is on top of potentially overlapping functions in different solutions and double work required to input data into various solutions.
In addition to convenience, as we continue heading in this direction it will become easier to answer that seemingly simple question: What is this business’s per-employee spending on IT software? In the meantime, it might be worth calculating and evaluating how existing software solutions are best priced to suit your business spending.