Software company 1E raised eyebrows in 2016 when it released a report warning that businesses have wasted a collective $28 billion in the U.S. alone as a result of unused software purchases and subscriptions. At the time, 1E estimated that 38 percent of software procurement is a total waste.
The latest analysis suggested that not much has improved, with data from Zylo — released in September — estimating 37 percent of Software-as-a-Service (SaaS) spend to be categorized as waste, while spend on software is on the rise across all sectors. These statistics may reflect an overall positive trend in the software space: It is now easier than ever for businesses to buy software solutions, thanks to the consumerization of the market.
However, according to Ryan Bonnici, chief marketing officer at enterprise software rating platform G2 Crowd, what an enterprise actually needs from a software provider is far more complex than the needs of a consumer.
"We've all bought software we've regretted," he recently told PYMNTS. The problem is, for companies, the stakes can be much higher. "The act of buying software, in its own right, is something that is scary. It's a lot of money, and people's jobs are on the line if they do a bad job."
Procuring a software subscription that goes unused — or setting up automatic subscription payments that go unnoticed — certainly creates a problem for businesses of all sizes in the form much wasted spend. A deeper dig into the challenges of B2B software procurement, though, reveals a multilayered challenge for companies struggling with a lack of spend visibility, project management, data integration and beyond.
Take, for example, a large company with multiple teams. One team may be using Management Software A, while another team may be using Management Software B, despite both providing the same service like project or expense management. Even more challenging, Bonnici explained, is when a department may be using the free version of Software A, while another department has upgraded to a premium version of that same software.
"A lot of times, leadership and financial teams lack financial visibility on who is spending what on what, because it comes in as an expense on a credit card," he said.
Currently, G2 Crowd's spend management services are limited: The company allows its business users to search for software solutions based on their own budgets and the cost of that solution. However, G2 Crowd recently announced a $55 million Series C funding round from IVP, Accel and Emergence Capital, a funding boost that Bonnici said will largely be used to build out the platform's spend management capabilities.
For one, he said, G2 Crowd is only a few weeks away from being able to integrate with companies' existing spend management platforms so that those businesses can gain more visibility into all the software tools they're using, and how much they're spending. There is opportunity here for companies to bundle their services for a discount, and for software vendors to add more users from a single corporate customer into their platforms — and, therefore, enhance the stickiness of the product.
The funding will also be used to develop a way for companies to transact on the G2 Crowd platform, a functionality Bonnici said clients have been asking for as of late. It's another residual effect of the B2B software procurement consumerization, he noted, particularly as companies may start off with the free version of a software tool, then upgrade to the paid version as the business expands and needs more sophisticated tools.
"The business model of 'freemium' software has really pushed the consumerization of business software forward," he said. "What we're finding is that buyers come to us and want to buy software, but they don't want to have to speak to a sales rep at that company."
The actual procure-to-pay process for software can take weeks, or even months, so being able to purchase that software once G2 Crowd's algorithms have recommended a product will accelerate the process. For software vendors, this cuts down on lead generation and customer acquisition costs, too, Bonnici added.
As G2 Crowd begins to further develop the payments and spend management side of its platform, the company will be looking more closely at corporate software procurement and usage habits. Bonnici said the company is likely to deploy credit card acceptance capabilities, particularly for small businesses that tend to buy software with their cards, but will examine other possible payment options, too.
The firm is also looking to roll out an insurance product, allowing companies that have purchased procurement software recommended by G2 Crowd, but ultimately find it unsatisfactory, to switch to a different provider — again part of the effort to cut back on wasted spend and unused products. That's because as challenging and expensive as software can be for companies, businesses cannot afford to not take advantage of the SaaS boom as part of their overall digitization efforts.
"Maybe five or 10 years ago, it was an advantage if you were a company that moved quickly — you got an app, you moved to the cloud, you allowed for ePayments," said Bonnici. "Today, unfortunately, that's the bare minimum. It's a critical thing today to not mess up."