IT Expense Management in 2025 is Focused on SaaS and AI Costs

Source: Scott duFour, Chief Information Officer, Corpay

With the 2025 budget season under way, IT leaders are once again facing the familiar challenge of how to manage the growing cost of software as a service (SaaS) while also determining how much to invest in AI. Dealing with contracts approaching their renewal cycles, the pressure to control expenses while maintaining operational efficiency and sales production is more intense than ever.

The Rising Tide of SaaS Costs

Over the past three years, our operating expenses and employee costs have remained relatively stable—even amid inflation and merit increases—while we’ve experienced compound annual growth rate (CAGR) of eight percent in SaaS costs. This is a common trend that forces IT departments to reassess the value proposition of these tools and consider difficult decisions, such as discontinuing certain productivity software.

Historically, companies would purchase a software license and pay 17 to 20 percent in annual maintenance fees. However, the shift to SaaS models has changed the landscape. Vendors are increasingly phasing out support for legacy software versions with more expensive cloud-based alternatives. While the initial costs of these solutions may align with existing software, renewal periods often bring significant price hikes with little to no added value.

This upward pressure on costs shows no sign of abating. As more vendors move to cloud-based offerings, companies must exercise extreme caution when entering into new contracts. Bringing the CFO, procurement and/or IT into the negotiation process early is crucial to securing the best possible deal. In addition, business leaders who have the discretion to adopt new software on a small scale must recognize the long-term financial implications of those decisions, particularly when IT eventually inherits the contracts.

Mitigating Bloat with Strategic Procurement

One of the key strategies to managing these rising costs is to involve IT procurement from the outset. By evaluating potential purchases early, IT can identify overlapping solutions across departments and leverage the company’s size to negotiate more favorable terms. This approach also helps set caps on cost increases, providing some protection against runaway expenses at renewal time.

It’s essential to recognize that vendors are aware of the high costs associated with switching to a competing product. This knowledge can weaken the impact of any threat to walk away in favor of a competitor. However, vendors may also see an opportunity to cross-sell additional products, incentivizing them to offer more competitive pricing.

Rather than purchasing standalone products, IT should first explore whether existing vendors offer comparable solutions that can be bundled with current services. For instance, as demand for a popular teleconferencing solution waned post-pandemic, the company raised prices to sustain its growth narrative. In response, many organizations transitioned easily to an entrenched competing product bundled with collaboration tools they were already using.

The AI Conundrum

As organizations delve into budget discussions for 2025, not surprisingly, AI is focal point. The conversation revolves around two primary questions: how can AI be utilized internally, and how can it enhance the product solutions we offer to clients? Vendors are rapidly integrating AI features, presenting them as add-ons or entirely new offerings. However, it’s up to companies to critically assess whether these AI solutions deliver genuine value or are simply riding the wave of hype.

On the flip side, organizations must explore how they can internally leverage AI to boost back-office efficiency and enhance the IT embedded in their products. For companies like ours that operate in regulated industries, such as credit services, careful consideration must be given to the implementation of AI, particularly in areas like credit decision-making, where compliance remains paramount.

To that end, we’ve conducted proof-of-concept (POC) trials in finance and other departments to gauge the potential of AI-driven solutions. These POCs are vital in understanding how AI can be integrated without compromising the integrity and compliance of our services.

Looking Ahead

As we move forward with 2025 planning, it’s clear that managing SaaS and cloud-based costs will continue to be a significant challenge. However, by taking a disciplined approach to procurement, involving key stakeholders early in the process, and critically assessing the value of emerging technologies like AI, IT leaders can navigate these complexities and ensure that their organizations remain both agile and cost-effective in the years ahead.