Before the holidays in 2022 there was a lot of talk about vendor consolidation in software. Specifically, there was a strong prevailing narrative on Twitter that software customers were going to rationalize spend after years of continued SaaS adoption by consolidating from point solutions onto platforms. Below is a thread where I dug in beyond the narrative:
A lot of talk recently about platforms and software vendor consolidation. Rightfully so — software apps and dev tools have sprawled out tremendously over the past ~5 years. (1/10)
Co’s see an opportunity to consolidate, catalyzed by macro pressures driving cost cutting initiatives. They have started to / are looking to cut costs in the short term over the next ~3 - 6 months and vendor consolidation is top of mind as a great place to start. (2/10)
Unsurprisingly, the narrative gets a bit murkier when you dig in. Though potentially optimistic, budget forecasts still look healthy when you zoom out past near term cuts… (3/10)
…and areas with the strongest spend tailwinds can also be most ripe for consolidation, perhaps driven by underlying fragmentation of the biggest spend categories. (4/10)
Categories where cost is the primary concern / incentive behind vendor consolidation are genuinely the categories you’d assume are most painful to rip and consolidate within. Though again maybe are also the most fragmented categories? (5/10)
Not to mention the nuance when you drill down on propensity to consolidate by customer size / industry / product / geo / etc. See Okta’s Q3 commentary below. (6/10)
Vendor consolidation will happen. The n’th productivity app will be cut. Self serve spend limits will be lowered. Sales cycles will drag longer. Some platforms will emerge from this environment stronger than when they entered, some point solutions will cease to exist. (7/10)
But consolidation doesn’t seem to be a universal truth, and there may be some resilience to it in categories like infra & security where CIOs and CFOs don’t yet realize ahead of time how painful it is to migrate or see single vendor risk in security specifically. (8/10)
