Enterprises are spending more than one-quarter (28%) of their software budgets on upgrades and licensing changes – and rising fees are expected to cause additional financial strain.
That’s according to research from Dublin-based software provider Origina, which warned that IT leaders now face a troublesome “software tax”.
The company describes this as a “recurring burden embedded in the enterprise software model that consumes capacity, diverts talent, wastes working assets, and adds costs”.
Adding insult to injury, the study claimed many enterprises have “little practical ability to refuse” software upgrades, forcing them into paying up. A key factor behind this, according to Origina, lies in accelerating vendor-driven upgrade and refresh cycles.
The vast majority (95%) of IT leaders polled said they have paid for a vendor-driven upgrade in the past three years, for example. These cost large enterprises an average of $12.87 million, the study noted.
Moving away from major software vendors would create additional complexity and strain, according to 80% of IT leaders.
No wiggle room for IT leaders
According to Origina, IT leaders now have “little room” when it comes to software purchasing and subsequent upgrades.
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More than three-quarters (78%) of respondents said their primary vendor “sets the timing and terms of change”, rather than their organization. A similar number (76%) also revealed they have “very little real leverage” in negotiations with major vendors.
Put simply, IT leaders are dancing to a tune set by their provider, preventing flexibility and forcing costs upon them. More than half (53%) also revealed that mandatory software upgrades impacted business value, performance, and reliability.
Tomás O'Leary, CEO and founder of Origina and co-author of the report, said this trend means many IT leaders stick with existing providers to avoid hassle. They ultimately end up paying higher costs, however.
“When the alternative to an unwanted upgrade is losing support on systems the business runs on, saying yes is often a rational response,” he said.
“That’s exactly the problem. The market has left some of the most experienced technology leaders in the world with little room to refuse, and that cost shows up in budgets, in engineering time and in innovation that never gets funded.”
IT leaders are increasingly pushing for stronger protections for enterprises, according to Origina. More than nine-in-ten (92%) said they would actively support legislation giving firms “protections comparable with those in long-term residential rental relationships”.
82%, meanwhile, could support software-support requirements akin to those imposed on manufacturers under EU hardware repairability rules.
Downstream impact
According to Origina, the effect of this trend reached “well beyond the IT budget” and has a direct impact on broader innovation goals – particularly AI adoption.
With enterprises ramping up integration of the technology, innovation budgets are feeling the pinch due to rising software-related costs.
More than one-third (34%) of respondents, for example, said vendor-related costs were a “major contribution” in their decision to slow, pause, or cancel AI projects outright.
AI projects aren’t the only enterprise domain affected by vendor-driven software upgrades, the study added.
Indeed, the company claimed “people and hardware are affected too”. Around 84% of senior engineers said they “always” or “often” spend time working on upgrades rather than “building future capability".
“Ninety-one percent report they have scrapped functional hardware in the past three years purely to meet a software vendor's support deadline, losing an average of 1.65 years of useful hardware life,” the company said in a blog post.