Mike Austin (YouTube, Jan 20, 2023) outlines three main behaviors software vendors will take during a recession: (1) raise prices (examples: Microsoft price/Fx adjustments, IBM Passport price increases, Oracle support increases), (2) increase license/compliance audits (Microsoft, IBM, Oracle, Adobe cited), and (3) implement layoffs to right-size staff — reducing customer-facing support and account resources. He explains drivers: many licenses are per-seat/user (Microsoft 365, Salesforce), user growth and migrations have slowed in the prior 18–24 months, and vendors still expect revenue growth despite mixed budget forecasts from analysts.
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The things that I'm often asked is what do I, what you know, Mike, what do you see software companies doing during, during the coming recession? And there's really, you know, three main things. The first is they're going to raise prices because they've set goals, they need to meet their revenue goals otherwise their stock price gets hit. And so they're going to raise prices. And this is already happening. Ms. Has announced some price increases depending on where you are in the world around. They're calling it FX adjustments but you know, they've raised prices. IBM's raised prices on a bunch of their Passport products and Oracle raised support, support costs. For the first time ever we're going to see increased audits. This is already happening. So we're seeing audit activity pick up again from, from Microsoft, IBM, Oracle, Adobe and a bunch of others. And they're going to lay off staff and we're seeing that already. Some of the layoffs I think, you know, are they pending due to economic uncertainty? Maybe, but I think these tech companies will probably use as an opportunity to right size staff where they think they have bloat. But that means that there's going to be less support right from them as they lay off people. Your account teams are getting smaller, resources may no longer be there that you work with. The resources that they have internally work, you know, to work with are going to be scattered and then you know that is going to in turn become increased pressure on you. So as you're trying to save money, they're going to be trying to sell you more because the reps are going to be in worried about number three. So I put number two there. But number three they're going to be worried about getting laid off if they don't meet their revenue objectives and things like this. So this is not happening. Just besides the recession, we sort of seen some of this coming for the last little while before the recession coming. A lot of this has to do with the fact that most licenses are still based on user or seat, you know, per seat licensing. So you think about Ms. 360, you know, Microsoft 365 or Salesforce, you know, they're based on the number of users and like those are not growing. Companies have not been growing, you know, at their traditional rates the last 18, 24 months. And as that happens migrations are slowing which means net new license revenue is slowing as budgets get decreased. You know, there are conflicting reports out there. Gartner and them are saying that cloud and IT budgets will increase this year. But others are saying that they're going to be flat to decreasing. So, you know, it's going to be somewhere in between. I don't think that anybody's expecting massive budget increases, but the vendors are still going to be expecting mass.
