Why software feels cheaper but is actually costing you more

The great deflation fallacy

At first glance, the argument that software is deflationary seems convincing.

AI is accelerating development cycles, no-code platforms are reducing engineering overhead, and market disruption is high. It’s never been easier or cheaper to build and scale digital products, and the options are almost endless to choose from.

Yet, despite these efficiencies and high levels of competition, enterprise software spend isn’t shrinking. In most organizations, it's doing the opposite: it’s growing.

Separating cheaper software from lower SaaS spend

To understand why, let’s look at a comparative situation; the evolution of television.

In the 1970s, a TV was a one-time purchase. You bought the set, plugged it in, and you were connected to channels.

As demand shot up, more manufacturers entered the market and the manufacturing process itself became more streamlined and cheaper. This subsequently reduced the unit cost of the TV.

Today, a television is a smart device at the center of a sprawling ecosystem – streaming services, gaming platforms, cloud subscriptions, and more. The unit cost fell, but the total cost of ownership exploded.

Consider this: an ordinary TV can cost $200. The average monthly spend for streaming services (Netflix, Hulu, Disney+ etc) for US households according to Variety is $69. The unit cost of the TV will be overtaken in just over three months.

Enterprise software follows the same pattern. As tools become easier to build, the number of tools per function increases. One system then becomes three. Each new capability spawns five more use cases.

Lower costs drive a proliferation of tools and platforms available, not savings.

AI shifts costs, it doesn’t eliminate them

AI has undoubtedly made software development more efficient, but that doesn’t necessarily translate into lower operational costs.

Instead, expenses shift to areas like usage-based APIs, consumption-tiered pricing models, GPU infrastructure, and enterprise-grade support.

The result?

Organizations are reallocating IT budgets, not reducing them. Spend moves from salaries to services, but overall outlay remains steady or increases.

For example, Agentic AI may replace some more junior functions, but this reduction in headcount costs will only be funnelled into the tech budget to fund the consumption and outcome-based pricing that AI runs on – and that could easily spiral out of control.

Vendor Lock-In won’t disappear with AI

There’s a popular belief in procurement circles that AI will eliminate vendor lock-in. In theory, it makes sense. In practice, it doesn’t.

Teams don’t abandon platforms because they can; they do so when they must. For example, when costs are too high, the supplier is underperforming, or the platform can’t service the rapid business growth without becoming a blocker.

Even then, familiarity, internal processes, and risk aversion keep legacy systems entrenched. And when alternatives are available, switching typically only happens when triggered by leadership mandates or major disruptions.

It’s a behavioural issue, not a technical one.

Plus, AI products may themselves contribute to a rise in Vendor Lock-In scenarios. If you’re investing time, data and resources into perfecting an AI tool to serve your business, switching to another would mean retraining an entirely new tool, delaying your AI roadmap, and further deployment.

Avoiding Vendor Lock-In is about precisely that – avoidance. Any disruption caused by change management is not one businesses take lightly, or want to consider at all. Better to avoid it altogether than try and get out of something.

Price increases are hidden, not halted

While software list prices may appear stable, the real cost increases are hidden in packaging and licensing changes. Bundled AI features, compliance modules, forced platform upgrades, and opaque tiering structures quietly inflate spend over time.

These aren’t headline price hikes - they’re structural pricing evolutions. Coupled with the effects of SaaS inflation (currently at 11.3%) and vendor tactics such as shrinkflation, and customers are facing a world where they’re getting less for their dollar. To secure a like-for-like contract, businesses are having to pay more.

The big vendors still hold the cards

Market giants like Microsoft, Adobe, and Salesforce continue to exert significant pricing power. Their grip on enterprise contracts remains firm - not through overt pricing aggression, but through deep integration, bundled value, and contractual leverage.

Their constant slew of new features, tools, and integrations with point-SaaS solutions ensures they stay at the heart of enterprise SaaS ecosystems, making them stickier than ever. With this, they can leverage higher prices as the sheer resources and disruption required to switch away is unpalatable.

Growth fuels complexity, not efficiency

As organizations scale, their software stacks don’t consolidate - they expand. New departments, global markets and governance frameworks all demand additional tools. Finance needs a bigger suite to keep pace, security software needs to be expanded and enhanced, and procurement requires oversight platforms to control and monitor the software expansion.

Even if individual tool costs fall, the aggregate need grows. Instead of fewer, cheaper systems, companies face broader, more fragmented ecosystems.

Acquisition is cheap. Renewal is profitable

SaaS providers know how to land a deal: low upfront pricing, generous discounts, seamless onboarding. But profitability isn’t found at the point of sale - it’s realized at renewal.

By the time contracts are up for renewal, the tool is deeply integrated, user adoption is widespread, and switching costs are high. That’s when vendors can leverage more money - through seat expansion, module add-ons, and subtle value-based pricing strategies.

Yes, the cost to start is falling. But the cost to stay is rising.

The Bottom Line for Finance and Procurement Leaders

Software may be cheaper to build and launch - but that’s not translating into lower enterprise spend.

Instead, costs are diffused across more tools, more teams, and more pricing models. Procurement and finance leaders need to move beyond surface-level pricing to understand true lifecycle cost.

SaaS isn’t losing pricing power. It’s getting more sophisticated.

You’re not spending less. You’re just spending differently. And what’s most worrying is that it’s not as obvious as before.