Software contract spending in the second quarter hit its lowest point in three years, according to a new report, suggesting potentially disappointing results when providers report earnings over the next month.
(Bloomberg) — Software contract spending in the second quarter hit its lowest point in three years, according to a new report, suggesting potentially disappointing results when providers report earnings over the next month.
The average annualized value of software deals inked in the second quarter declined 51% to $62,000 compared with the same April-June period a year earlier, according to an analysis of 3,000 transactions from more than 500 buyers by tech procurement service Vendr. It was the lowest value since the same quarter in 2020, when the pandemic flared in the US.
Many renewals are happening with fewer paid users due to job cuts during the last year, said Austin Petersmith, Vendr vice president of growth. Companies are also more price-conscious — “with every renewal, buyers are looking to adopt the minimum viable tier they can,” he added.
Vendr analyzed transactions from 1,000 software makers, including Snowflake Inc., Microsoft Corp. and Zoom Video Communications Inc. The analysis included spending on more than two dozen types of enterprise software, from cybersecurity to accounting and cloud-computing services.
Tepid customer behavior has been denting earnings and causing investor anxiety for the past year. Yet, many analysts expect artificial intelligence enthusiasm to fuel a wave of investment. Petersmith said he hasn’t seen many deals specifically for AI features yet.
In some cases, software makers have responded to the uncertainty by raising prices, Vendr said. Last week, Salesforce Inc. announced its first price hike in seven years, and will also charge extra for new AI features. Microsoft said Tuesday its new AI products will cost $30 per user per month — a higher figure than most analysts anticipated.
Software companies are also providing fewer discounts, Vendr said in the report. The average discount rate in the quarter was 7%, down from an 11% average in 2022, it said.
The climate for software spending will be tested in the coming weeks with earnings reports beginning Wednesday from International Business Machines Corp. and continuing through next month with providers including Zoom, Snowflake, Workday Inc., and ServiceNow Inc.
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