Software Vendor Insights: What do the numbers tell us about the opportunities for ITAM negotiations?

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Software Vendor Insights: What do the numbers tell us about the opportunities for ITAM negotiations?

What software vendor insights can be gained from the latest financial results from Amazon, Google, Broadcom, Salesforce, IBM and SAP?

An important part of ITAM is paying close attention to the health of the companies we routinely buy software from. You can learn a lot about a software publisher’s general health, trajectory and priorities from their quarterly and annual results. Are there audits on the way, is there a struggling product line that would be more likely to offer discounts, or is it at risk of being discontinued? Poor results can leave revenue gaps which need to be plugged from somewhere. Conversely, are there product areas that are so strong there’s clearly no point in trying to negotiate a discount.

Acquisitions are also an area of significant interest to ITAM – if a vendor has spent money acquiring a company they will be looking to recoup their investment as soon as possible. This is being played out in the case of Broadcom acquiring VMware for example, where both prices and audits are on the rise (more on that below).

Several key software vendors closed their financial years towards the end of 2023 including:

• Amazon AWS
• Google Cloud
• VMware (now Broadcom)
• Salesforce
• IBM
• SAP

We recently hosted a Free Online Summit with Deloitte and USU to discuss how these software vendors specifically have weathered the ups and downs of 2023, and what to expect from them in 2024 – including audits, product focus areas, licensing changes and more. If you weren’t able to join the event live, you can re-watch the entire Software Vendor Insights 2024 summit here. In the meantime, this article summarises some of the main discussion points when it comes to the financial results that were published towards the end of 2023.

In this webinar panel discussion, Rich Gibbons was joined by Vera Vianden & Gabriel Zechbauer from Deloitte, and Estéban Rautureau from USU.

Software Vendor Insights from results published in late 2023/early 2024

Amazon AWS

Starting with Amazon, AWS sales for the 4^th quarter of 2023 were $24.2 billion, which is 13% up year-on-year. Their operating income was $7.2 billion, which was up 38% year-on-year.

When looking at the year as a whole, AWS segment sales increased 13% year-over-year to $90.8 billion.

Comparing it to Microsoft Azure, Amazon AWS is still bigger, but Microsoft is growing faster.

Google Cloud

Google Cloud is currently in third place behind Amazon AWS and Microsoft in the cloud vendor space, but with Oracle trying very hard to take Google’s third-place position. In Q4 2023 Google Cloud grew 26% to $9.2 billion. $33 billion for the year, up 26% as well. That puts it at approximately a third of the size of Amazon AWS.

This is a real turnaround for Google. Last year was the first time they had a quarter which was in profit (see article Software vendor financials analysis – April-June 2023). Given Google’s reputation for decisively shutting down unprofitable product lines, and the small overall size of its cloud business vis a vis its broader Search business, many people have had concerns about the longevity of Google Cloud. These positive results may help to put those worries to bed.

VMware (now Broadcom)

We have been covering the impact of Broadcom’s acquisition of VMWare for some time now, warning our readers to watch out for increased prices, audits, changes and so on. We’ve already seen Broadcom put an end to VMware perpetual licenses and massive price increases being quoted by customers. While we can’t verify these specific cases, we have seen reports of customers saying their bill had increased by 6,600% with another saying their renewal bill went from $8 million to $100 million.

If you’re built on VMware, it’s going to be very difficult to move off it anytime soon. There were however some small saving graces (firefighting?) as announced by Broadcom CEO Hock Tan in a blog post on the 15^th April 2024. Most notably were the following comments, which will soften the impact of the end of perpetual licenses for some customers:

1) Free security updates for perpetual customers:

“To ensure that customers whose maintenance and support contracts have expired and choose to not continue on one of our subscription offerings are able to use perpetual licenses in a safe and secure fashion, we are announcing free access to zero-day security patches for supported versions of vSphere, and we’ll add other VMware products over time.”

2) “We heard that fast-moving change may require more time, so we have given support extensions to many customers who came up for renewal while these changes were rolling out.”

Salesforce

Q4 just over 9 billion. Up 11% year-on-year, consisting of $8.5 billion of subscription revenue (up 12%) and just under half a billion for professional services (down 9%). Full financial year revenue $35 billion (up 11%).

We noted a real increase in Slack revenue. If this happens every year will they start to increase prices, push customers onto higher editions, billing for storage costs etc. All things to think about.

IBM

IBM’s revenue for Q4 was $17 billion, up 4%. Software revenue was $7.5 billion for the quarter (up 3%), Red Hat within that was up 8%, consulting revenue was up 6% to $5 billion, infrastructure revenue was $4.6 billion (up 3%).

Interestingly, Z Systems (their mainframe offering) was up 8%, the same rate of growth as Red Hat. In a world where everyone is thinking about the cloud, it is interesting to see mainframes – arguably the most traditional on-prem infrastructure there is – growing at the same rate.

SAP

Full-year revenues are up 6% year-on-year, with cloud sales of €13.5 billion (up 20%) and S/4HANA Cloud specifically within that of €3.5 billion, which was up 67%.

These are all good numbers, although it should be noted the growth figures are lower than they were last year (overall growth and cloud sales are lower). The S/4HANA cloud figures are interesting, as clearly there is a lot of momentum and ambition at SAP to move its customers to it. This could be an opportunity for organisations that are already considering the move. If SAP really want you to move to S/4HANA, there could be an opportunity to negotiate a discount off the list price.

Watch the full webinar for additional analysis on these financial results by Deloitte and USU, in addition to a deep-dive into the impact of the Broadcom VMware acquisition and an introduction to ‘SAP for me,’ SAP’s newest central platform for license overview from Deloitte. Estéban Rauturea from USU also explains how to successfully migrate to S/4HANA from the licensing perspective.

Watch the full Software Vendor Insights webinar here

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