SaaS Overpayment for Collaboration Software Hounds Market Growth

Photo by Helena Lopes

Remote collaborations have been in demand since the onset of COVID-19 and continue to be highly relevant even as employees have started to return to the office. Collaboration software vendors know this for a fact, made evident by the price increases they implemented over the past few years. Research from Vertice found that 80% of providers have been raising list prices since 2019 at an annual growth rate of 10% through 2021. The increase for 2022 is likely bigger, given that global economies are contending with high inflation and a supply chain crisis.

The price hikes are further reinforced by a growing world market for these platforms. A report by Global Industry Analysts shows the project collaboration software market increasing its value from $8.2 billion in 2020 to $16.9 billion by 2027 at an annual growth rate of 10.9%, with the video conferencing segment notably growing by 12.4% annually. This underscores the persisting demand for collaboration platforms as workspaces continue to evolve digitally.

Recent online collaboration statistics reveal that around 95% of organizations depend on these tools for communication and managing project tasks. This has led software vendors to raise their prices accordingly to go with advantageous price policies that bear down on users’ finances. As a result, SaaS overpayment occurs for over 90% of companies, with businesses overpaying by an average of 20% to 30%.

While the 10.9% annual growth rate of the collaboration software market is notable, it could have been higher had software prices been better regulated or more consumer-friendly amid today’s high inflation.

Transparency Concerns

The websites of many project collaboration software vendors do not indicate the list prices, much less offer packages that scale to various clients’ resources. Vertice’s research shows that 55% of vendors hide their pricing from potential customers. Only 14% provide a complete list of prices and packages online, significantly lower than the SaaS industry standard. Rather than show price lists, many vendor websites advise potential customers to contact them for inquiries.

This collaboration software trend works to a vendor’s advantage since the service can be priced higher than the industry average, especially for large enterprises. In addition, potential customers are typically led down a provider’s sales funnel, paired with factual and sometimes emotional pitches, before the pricing information is revealed. This gives vendors the leverage to woo customers into finding interest in features they don’t really need. By then, people who don’t have much time to spare or aren’t particularly resolute about exploring the market for the most ideal solutions might feel compelled to make a purchase, which leads to SaaS overpayment.

The pricing (and sometimes feature) non-disclosure also makes it hard for companies to compare products across all relevant factors. This can result in a company buying a product that doesn’t work best with its needs and operational style.

Shifty Payment Lock-Ins

Collaboration software providers aim to turn potential customers into long-term subscribers for consistent returns. With this, the policies of 91% of providers contain auto-renewal clauses, most of which come with a 30-day period of notice. Auto-renewals may be convenient, particularly for enterprises that routinely deal with numerous transactions, but can lead to overspending if these incorporate undisclosed price increases.

Users who have not kept abreast of the updated costs might suffer from bill shock or a sudden rise in expenses. It doesn’t help that the policies of 72% of collaboration software providers carry clauses that enable them to alter their prices at any given time. This compels users to regularly check for updates from their providers.

Methods to Reduce Costs

In a bid to increase the number of long-term customers, collaboration software vendors afford users financial incentives should they choose to do business for long periods. Recent SaaS software statistics reveal that 89% of providers offer discounts based on how long a customer intends to use the platform. As such, many enterprises opt for long-term deals, given the usefulness of these tools.

Another method to reduce costs is through negotiations. While the lack or absence of fixed costs largely favors vendors, customers can take advantage of this by dangling the prospect of committing to a long-term deal before inquiring about product scalability and the manner in which the platform’s features improve workflows, employee performance, and returns. In doing so, customers gain significant leverage, which potentially influences the costs. On average, businesses save 15% to 34% from negotiating deals with vendors.

To know which platforms work best with operations, some companies avail of the free trials or free plans offered by collaboration software providers. This enables them to not only get familiarized with the features but also see how much these improve operations and company performance. Additionally, even with the lack of transparent pricing, organizations can directly compare platforms. Moreover, companies can negotiate a deal based on these free offers, one that centers on their preferred features and, if possible, without the unnecessary ones for a fair price.

Are Collaboration Platforms Worth It?

Although it’s not always easy to reduce the cost of collaboration software, the rewards reaped from using these platforms can accelerate the digital transformations of organizations. Besides streamlining and automating workflows, these comprehensive systems bridge communication gaps, expand file storage, organize tasks, enable remote work, and sometimes track one’s finances.

With this, research from TechRepublic Premium discovered that 91% of organizations use collaboration software to facilitate remote work, 84% to improve communication, 61% to enhance team management, and 54% to conduct better staff training. Some even leverage these systems for employee tracking and to improve HR.

Vendors know the value and increasing demand for the products they offer, which is why they can afford to concoct policies lacking in transparency. Customers who know better can use this to their benefit as they negotiate an attractive deal that fulfills their long-term business needs for a discounted price.