Dive Brief:

• Companies are throwing away money on software-as-a-service licenses that are underutilized, with such waste ranking as a top challenge for organizations struggling to keep their technology spending under control, according to SaaS management services provider Zylo.

• Companies wasted an average of $18 million on unused SaaS licenses in 2023, a 7% increase from the prior year, according to research findings released Tuesday by Zylo, which is headquartered in Indianapolis, Indiana. On average, companies use just about half of the software licenses they have purchased, the report said.

• “There’s a ton of wasted SaaS spend,” Ben Pippenger, Zylo’s chief strategy officer and co-founder, said in an interview. “It’s a big problem for companies.”

Dive Insight:

The annual study was based on 12 months of anonymized, aggregated data from its customers, including employee expense and accounts payable details, purchase orders, and data coming directly from apps. It also included survey data from IT and software asset management professionals.

The findings come on the heels of similar research from Vertice, a London-based SaaS management company.

Bloated SaaS stacks have forced many companies to turn to automation tools as a way of gaining increased visibility into how much money they waste unnecessarily on software licensing and “shadow IT,” the unsanctioned use of apps by employees.

Zylo’s research found that investments in SaaS management automation are paying off in some areas. Average SaaS spending reached $45 million in 2023, down from $50 million in 2022 and $60 million in 2021. In addition, the average organization used 269 apps last year, compared with 291 in 2022 and 323 in 2021.

The slimming down of SaaS portfolios and spending reflects the shift from “growth at all costs to responsible business growth,” according to Zylo.

“Following hasty software purchasing during the pandemic, companies went through a ‘Great Rationalization’ of their SaaS applications,” the report said.

The study also found improvements in the area of shadow IT spending, which decreased by 39.8% in 2023 compared with a year earlier. However, while the spending reduction demonstrates progress, shadow IT still accounts for about a third of company’s SaaS stack, presenting ongoing challenges and risks, Zylo said. Sixty-seven percent of respondents said that employees purchasing software on their expense cards — outside of company policy — is a major challenge.

Meanwhile, SaaS licensing waste levels were high for companies of all sizes last year, Zylo found. Small companies lost an average of $2 million and large enterprises lost an average of $127 million on unused licenses. Seven in ten respondents said that reducing such waste is their top SaaS management priority.

License waste can happen for a number of reasons, including when a company fails to revoke or downgrade a license for an employee who has quit or moved into a new role, Zylo said, adding that visibility is critical to reining in the problem. 

“When you have visibility, it’s much easier to put governance in place and enforce it,” the report said. “A massive blind spot such as employee-led purchasing proves a strong case for centralizing visibility into your software environment.”