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B2B SaaS Software Prices Soar On Silicon Valley Bank Failure

Posted by Neil Sheppard on April 3, 2023

SaaS news: Silicon Valley Bank collapse drives up prices

SaaS management will become even more pressing in the coming days as the collapse of Silicon Valley Bank drives up SaaS application prices. We consider how you can mitigate the costs.

Software-as-a-service (SaaS) management is a crucial issue for IT teams right now. Increasingly, workers prefer user-friendly cloud applications they're familiar with over prescribed workplace toolsets.

This is often called 'shadow IT', but it's not that sinister, so we prefer the phrase 'business-led IT'. Many of these cloud applications are useful and cost-effective, but they do need proper oversight and management.

The LeanIX SaaS Management Platform (SMP) automatically scans your financial, contract management, and single sign-on systems to discover and track SaaS applications in use within your business. This is vital for managing costs and optimizing your SaaS portfolio.

Tracking SaaS spend is becoming particularly important as we're seeing a rapid surge in SaaS application prices. While such price rises were already predicted last year, according to the Wall Street Journal, the recent collapse of Silicon Valley Bank (SVB) is now playing a role in driving these increases.

So what happened to SVB and why has this impacted SaaS application pricing?

What happened with Silicon Valley Bank?

Silicon Valley Bank (SVB) was launched by the Bank of America in October, 1983. SVB was intended to cater to startups, primarily in the tech industry, which were underserved by traditional banks.

Other banks would look at profitability, something that was often beyond the reach of startup companies, despite their likelihood of long-term success. SVB, however, would be an alternative bank that enabled tech startups to access key funds before profitability.

By 1991, Silicon Valley Bank was earning over USD 12 million a year. Soon after, the dot-com boom saw the bank's profit soar, allowing it to ride out the following burst of the 'dot-com bubble', and the 2007 financial crisis. By 2022, the bank's revenue exceeded USD 7 billion.

However, the global increase in interest rates that resulted from the fallout of the COVID-19 lockdown saw SVB begin to incur steep losses in the value of its bonds. Due to what Annie Lowrey of The Atlantic described as "incompetent risk management and poor communications strategy" in her article, You Should Be Outraged About Silicon Valley Bank, there was an unsurvivable run on the bank, leading to its collapse; the second-largest in US history.

This has led various governments across the world to provide bail-out packages to their country's tech startups to prevent a disaster for the tech industry. Many of the world's most-promising tech startups have now been left in crisis mode as they scrabble to re-arrange their finances to ensure continued operation.

According to Reuters, this includes:

  • Roblox
  • Roku
  • Buzzfeed
  • Stitch Fix
  • Rocket Lab USA
  • Trustpilot
  • Nitro Software

Why, however, is this driving up SaaS prices?

Why the Wall Street Journal says this will drive up SaaS costs?

In the article, Silicon Valley Bank Bailout Relieves Pressure on Enterprise Technology, Wall Street Journal (WSJ) contributors Steven Rosenbush and Isabelle Bousquette consider the impact the Silicon Valley Bank (SVB) crisis will have on the tech industry.

The pair interviewed Thomas Phelps, CIO at Laserfiche, who said:

“The SVB failure is another event that may cause vendors to pass on even more steep renewal costs”

Phelps went on to say that Laserfiche was already seeing price increases of between 18% and 30% from their software-as-a-service (SaaS) vendors. This is likely due to a combination of rising interest rates and inflation, along with a need for quick cash to last through the crisis.

Another WSJ article by Angus Loten, SVB Collapse Puts Pressure on Enterprise-Tech Pipeline, quoted Maëlle Gavet, CEO of startup accelerator Techstars:

“Fundraising, which had already become far tougher, is only going to get tougher still, especially for enterprise startups. A lot of enterprise companies need pretty robust financing, because they only reach profitability at a certain scale."

The article also quoted Tim Herbert, CRO at CompTIA, who highlighted why SaaS management will becoming more crucial from now on:

“The fallout from SVB’s collapse is still very much to be determined. Even with the announcement of government intervention, rattled companies will inevitably take stock of their risk exposure across all facets of the business.”

What can you do to mitigate rising SaaS costs?

Another WSJ article, IT Leaders Re-assess Vendor Risks After Silicon Valley Bank Collapse quoted Claudflare founder, Matthew Price:

"[In the past,] there was a little bit of just almost recklessness with a lot of cloud budgets. So I think people are definitely finding ways to constrain that.”

This highlights a trend we're going to see in the next six months where organizations need to cut down on their spend on cloud and SaaS applications to counter the increasing prices we're seeing as a fallout from the Silicon Valley Bank (SVB) collapse.

This doesn't mean you need to deprive yourself of your most effective cloud tools, however. Cloud applications remain among the most cost-effective solutions for your business, but now is the perfect time to begin using SaaS management to streamline your cloud application portfolio.

It's concerningly easy to lose track of what SaaS applications your organization is subscribed to. Most organizations will find that their employees have purchased a SaaS application they didn't know they already had access to, or perhaps you'll discover that you don't need as many licenses as you're paying for.

Getting on top of your SaaS spending has never been more important, but before you can cut back on your costs, you first need a clear picture of what you're spending. That's where LeanIX comes in.

How LeanIX can help

The LeanIX SaaS Management Platform (SMP) integrates with all leading financial, contract management, and single sign-on systems to help you discover and track applications, providing visibility into the organization’s SaaS ecosystem.

Our fully automated SaaS management solution creates a complete SaaS inventory, offering:

  • continuous, automated discovery
  • usage tracking
  • contract and license management
  • actionable insights to maximize return on investment (ROI)

Using the LeanIX SMP, you can reduce your SaaS spend to compensate for rising prices due to the fallout of the Silicon Valley Bank collapse.

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