Twitter demonstrates the next steps for tech companies seeking major spending cuts
Joel Windels | FEB 20, 2023
The pandemic, a time of global strife, had an unusual effect on tech stocks and MAMAA companies. Valuations skyrocketed, with Amazon doubling in market cap over just two years and Tesla growing by well in excess of 1000% over the same period. Tech in general was booming, with mass hiring and investments made across the market, from startups to behemoths. In 2022, however, outlooks changed and markets deflated.
It was a brutal year for layoffs. Over 1,000 tech companies made serious cuts to headcount, resulting in the redundancy of more than 160,000 employees. So far, 2023 is following a similar pattern, with Docusign becoming the latest major player in a long list of companies to sever its staff — in this instance by as many as 700 employees. This past week alone has seen Twilio (1500), Sprinklr (100), Pico (400) and Wix (370) make big cuts.
Market pressures and a more conservative forecast is seeing huge swathes of tech companies of all sizes attempt to rightsize their business model and operations, with layoffs among the most appealing of measures to manage spend.
The big question for CFOs and other executives — even for those yet to make a round of cuts — is what to do with the rest of the business with a smaller workforce in depressed market conditions.
Twitter makes massive savings on SaaS
The social media firm has been in the news non-stop in recent months following the awkward acquisition by its controversial CEO in 2022. Within his first few months at the helm, Musk promptly let go, or encouraged the departure of, thousands of employees. What remained was a leaner, more fragile business with more tooling, office space and capacity than it required for its shrunken workforce.
But while rent, hard assets and other fixed costs are likely to be in the crosshairs for financial leaders at Twitter, many of these are illiquid and difficult to reduce. Leases are often long term, real estate is a challenge to alter and other commitments are rarely agile enough to alter with ease.
What can be more easily controlled, however, are spiraling software costs.
It therefore comes as no surprise that Twitter has managed to slash the cost of its CRM (Salesforce) by a hefty 75%, reducing its annual spend from $20 million to $5 million. And we’ll now see businesses of all sizes follow suit.
With SaaS inflation at 14% a year and SaaS stacks growing in size — even the smallest of businesses use dozens of SaaS products to remain effective — a growing number of companies will likely be examining their SaaS spend with more scrutiny, especially as it now represents a meaningful portion of the total budget.
Interestingly, the latest research shows that $1 in every $8 that a company spends goes on SaaS, around 12% of the total. A saving of just 10% would therefore mean savings in the region of millions of dollars a year for a company the size of Twitter, so 75% is a sizeable cost reduction. Businesses attempting to be leaner, meaner organizations in 2023 simply must learn from Twitter and take a more strategic approach to SaaS spending.
How to cut your SaaS costs by 20% or more
While it’s obvious why Twitter would now need fewer licenses for its Salesforce renewal, the company would have been able to reduce its SaaS costs regardless of reducing its headcount.
To start with, a third of all purchased SaaS licenses go unused by employees, and this critical under-utilization accounts for massive wastage. Shrewd CFOs will certainly target this in the next round of optimizations.
Then there’s the fact that companies are overpaying for SaaS by an average of 20-30%.
But with Vertice, this doesn’t have to be the case. With extensive access to the pricing benchmarks for more than 13,000 SaaS vendors worldwide, we can leverage the best possible deals on your behalf.
That’s not the only way we can help you reduce your SaaS spend though. With real-time visibility into your entire software portfolio and access to the usage analytics for each tool, we can help you right-size your SaaS stack for maximum cost savings.