SaaS Inflation: Please Explain This To Me

Right now, everybody’s talking about inflation. And when we do talk about about inflation, it tends to be focused on gas or grocery prices. That’s understandable. Those consumer categories are out there, for all of us to see. We all eat food, and most of us have gas powered vehicles.  

But gas prices go up and down. So too – I hope – will grocery prices. They are commodities and are subject to the whims of supply chains as well as supply and demand.

I worry more about the inflation I see creeping into other places – like online platforms. Those are services and shouldn’t be impacted as much by world market variations. But their price increases are outpacing much of what makes up the consumer price index.

Take inflation in the pricing of streaming platforms. In the US, Disney Plus bumped their rates on December 8th from 7.99 a month to $10.99. That’s a 37.5% hike!  Disney is jacking prices on their entire collection of streaming services, and all those hikes are similarly substantial.

Netflix has passed along 3 separate price increases since 2019. Add those all up and we’d see yearly inflation of 20 to 30% plus over the past 3 years.

Now, if you do some research into these platforms, you can find some rationale for these hikes. Original programming is expensive. Amazon is dropping a record $450 million dollars for one season of Lord of the Rings. Next to that, HBO’s House of the Dragon seems like a cut-rate bargain at just $20 million per episode. And if the subscriber base isn’t growing, then the money needed for these productions has to come from jumps in subscription prices.

But let’s face it. Rationalized or not, if a profit driven company has a chance to pass along a rate hike to pad the bottom line without us complaining too much, they’re going to do so. And given the current flurry of inflation that’s hitting us like a winter storm, it’s perhaps the perfect time to jump on the price gouging bandwagon.

One of the things going for streaming platforms is that if you look at the rates in terms of actual dollars and cents, they’re not going to break us. We’re talking about relatively small numbers here relative to our total monthly spend – a few dollars here – a few dollars there. We tend shrug and say, “It sucks but I can afford it”. It’s a psychological trick that platforms depend on to slip price hikes past us that are simply highway robbery if we stop to think about them in percentage terms.

The one thing that does tend to control inflation is consumer pushback. Ultimately, we can always stop buying. When demand drops, prices tend to drop in lockstep. When we look at business to consumer categories, the buck literally stops with us.

But what about B2B focused SaaS (Software as a Service) platforms, which are at least one step removed from consumers?

Take Eventbrite. I just received notice that the online ticket platform is raising their fees here in Canada. I won’t get into the dollar and cent specifics, but let’s just say their new fees amount to a hike of almost 100%!

In fact, almost every SaaS platform I use has recently sent me notifications of price increases. Although not as substantial as Eventbrites, they’re all significant. For example, Mailchimp is hoisting the fees on their entry level package by 17.5%.

Just in case you think I’m cherry picking my examples to make a point, let’s take a broader look at SaaS inflation, thanks to a recent report out of Vertice, a SaaS purchasing platform. According to this cross-industry look, SaaS inflation is 4 times the rate of consumer inflation (as determined by the consumer price index).

From the Vertice Report - SaaS Inflation Index - 2022

I have to suspect the motives of the SaaS platforms in passing these rate hikes along. Unlike consumer category price increases that are tied to supply chain issues, labor costs or other market factors, SaaS platforms typically offer nothing in the way of justification for their hikes. If they do, it’s something like “we need these increases to continue to build new features for you.” Isn’t building new features their job? If anything, the relative cost of development should go down as a product matures, not up.

Part of the reason SaaS platforms can get away with this is that we chalk it up to the cost of doing business and simply pass the costs along. Take the Eventbrite hike, for example. Most organizations using Eventbrite will simply pass these fees along to the ticket buyer, justifying it by saying that the actual cost to the customer will only be an extra dollar or two.

I think this is the wrong way to think about it. What worries me most about these hikes is that they’re insidious – by which I mean they’re subtle but dangerous. They don’t jump out at us the same way a hike that impacts one of our major spending categories – like food or fuel – does. When it comes to SaaS – we’re the frogs, and these hikes are the boiling water. We have more than enough inflation caused by legitimate factors. We shouldn’t add insult to injury by shrugging off price increases from SaaS developers who are simply taking advantage of an inflationary market to greedily gouge us.

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