Leadership Strategies

Accepting The Reality of IT Inflation and Ways to Cope

Essential Guidance to Drive Savings and Efficiently Manage Technology Spending
Pinterest LinkedIn Tumblr

Since we last reported on IT inflation in June, the situation has evolved as both buyer and supplier behaviors have adapted to the new reality that inflation is most likely here to stay.  The reasons for the price increases may be changing, as well as the areas of IT most impacted, but navigating rising prices for IT supplies, services and talent remains a challenge as we finish 2022.


“Technology buyers have now had a full budget year to adjust to the reality of rising costs.  What began initially as COVID-related supply chain disruptions coupled with COVID-related demand for remote work technologies soon erupted into huge price increases for key IT components such as CPUs, storage, and cabling,” says Chris Murphy, VP for IDC’s vendor benchmarks.  Looking back into the Summer of 2021, this was the start of the first IT hardware increases lasting into first half of 2022, a period with 20% price increases on client devices and 15% on servers, storage, and networking respectively, as vendors could no longer absorb rising component costs which kept prices relatively stable from the start of the pandemic early in 2020.

Now entering the Fall of 2022, our review of hardware list pricing history and recent transactions with customers show that hardware price increases have been minimal. Stability of hardware prices is a positive trend but not a full correction to the normal price dynamics of hardware in which prices decline as a hardware generation ages. Much like used cars holding their value, the cost of technology as measured by performance or capacity is stable. Last year’s hardware offerings continue to sell for roughly the same price this year, with newer generation hardware costing more, therefore upgrading hardware with newer technology still costs more that pre-COVID. The net effect is that IT budgets are still being stretched by the cost of hardware. Stable prices are an improvement from earlier this year, but a hardware market without price decreases is still out of the ordinary and costing technology buyers more of their IT budget.


Unlike hardware, software costs are not influenced by supply only by demand. During the height of the pandemic, key software categories led the transformation to remote work, leisure and learning and price became no object for many technology buyers who needed to enable these solutions. As the market moves past COVID, software vendors in most categories have found a way to extend user acceptance of higher prices. The race to subscriptions is accelerating and many vendors have discovered new ways to influence conversion like requiring a subscription over perpetual licensing for portability to the cloud. Annual subscription terms cost up to three times higher than a software maintenance renewal, and therefore subscription conversion provides vendors in most cases an automatic increase in annual revenue from a customer.

Subscription licensing and its outgrowth into PaaS and SaaS-based implementations shifts pricing power to the vendor. A user can no longer waive support and continue to use their perpetual licenses or seek out a lower cost third party software support provider. Vendors who have wooed customers into their PaaS platforms with low cost or free services to create applications and integrate their data, are now capitalizing on the “stickiness” created. Users can no longer separate and shop for the most economical hosting options for infrastructure.  Renewal discussions have a clock that runs in the vendor’s favor and comes with poor choices for migrating to any near-term alternatives if discussions fail to achieve user goals.

For these very reasons, private equity interests have accelerated their push into software.  Large conglomerates Broadcom and the newly formed Cloud Software Group (Citrix/TIBCO merger) will continue to capitalize on user software technology setups that are difficult to abandon, and these conglomerates are trying to make it even more complicated to negotiate on price by creating bundles and dependencies between solutions to achieve the best pricing.  “Recent customer experiences show flat installed base renewals running up to 400% higher in price among these conglomerates, and that will incent the investors of these conglomerates to further tailor price extraction methods and find more acquisition candidates to move to their umbrella,” says Neil Stewart, a Senior Research Director in IDC’s Sourcing Advisory Service.

Even those software vendors not part of a large conglomerate realize that the environment is ripe for raising prices whether it is just feeding off the bandwagon effect of the conglomerates, the expectation of future inflation or the resignation among users that software will cost more. Most software historically has around a 3-4% annual increase in price at renewal, increases are not new, but in 2022 software vendors are pushing this range to 6-10% price increases.


AWS recently raised consulting day rates by 7-8%, Adobe increased pro-serve rates by 20% and plenty of more examples exist as the cost to deliver professional services continues to rise due high demand for this service and a corresponding critical IT skills shortage. Will demand for these services continue or is the knee jerk reaction to build the new post COVID technology infrastructure that is now nearing completion. Recent rounds of layoffs within the high-tech community may alleviate labor shortages, but their focus will be on internal operations. The security or Kubernetes expert is expected to remain in high demand.

Infrastructure as a Service

Following both general component price declines and increasing operational efficiencies gained by hyper scaling, cloud computing services have a history of average decline in price. This trend downward in price eased late in 2021 to where we are at present with most of the cloud providers now enacting price increases across their offerings as they are not immune to higher component, labor and energy costs no longer have as steep of an efficiency curve as their businesses have matured.

Advice to Technology Buyers, Can You Wait?

This very well may be “peak market” from a technology cost standpoint, no category hardware, software, labor nor services is immune to increased cost. Being selective on new installations, expansions, renewal terms and projects conserves limited IT budgets and acts as a hedge that markets work in cycles and buying conditions may become more favorable soon. Instead of doing a storage upgrade now while storage controllers are scarce and generally reserved for new installations, wait, and buy a complete storage replacement later. 

For software, finding savings might be trickier as software vendors are having their moment to shine with higher prices, but besides working closely to optimize usage to spend, many users are shortening renewal terms from 3 year to 1-year terms. This protects cash flow and bets that windfall price increases seen at present will not last if the economy changes for the worse as forecasted, making next year’s renewal more favorable to the buyer. This can be a risky move as 1-year terms can cost up to 30% more than locking into a 3-year term, but today’s market shifts the focus to the short-term given the mixed outlook that may bring relief to today’s exorbitant pricing, so why lock in large price increases now?

Our advice for professional services is similar, demand is still high for these services but there is plenty of good reasoning pointing to a return to a normal spend on digital transformation projects without the accelerators brought by recent macro trends. Thus, slowing down the implementation of new projects or waiting until next year when the labor market offers more availability may benefit IT budgeting.

For many if not most technology buyers using a cloud first approach, IaaS remains a runaway cost item.  Accurately forecasting cloud consumption costs is a daunting task, and the first step to controlling costs is identifying costs by investing in spend management tools that specialize in the cloud. Incentivizing internal users to be cost efficient, using cloud optimization tools to buy spot instances, scaling resources to avoid costly overprovisioning will help, but one of the clearest ways to save is to keep an open mind to all possibilities. “We have seen moving some workloads back to on-premise or managed off-premise infrastructure result in savings of one-third the cost of running equivalent workloads in the cloud,” say Freddie Diaz of IDC’s Sourcing Advisory Service. In fact, many vendors now offer robust hybrid cloud solutions that still offer the flexibility of the cloud but reside on-premise (i.e. Dell APEX, HPE Greenlake) and we find these solutions priced well below the equivalent cloud solutions and only 10-20% more expensive than a traditional on premise capital purchase.

For more information and guidance on IT spending, IDC’s Sourcing Advisory Services provides clients with the world’s leading price benchmarking service supported by a core team of sourcing experts who help IT buyers drive new savings and efficiency across any of their technology purchases & partnerships, spanning all categories across IT hardware, software, services, and labor rates. Click the button below to access IDC’s Sourcing Advisory Services.

Brian is responsible for managing a global portfolio of research services examining the value of information technology equipment, software and services. He developed several innovate research practices and tools that bring an understanding to complex and ever changing pricing structures resulting from digital transformation. Brian consults on pricing and financing strategies to IT manufacturers, and reviews purchasing, contracts and provides deal analysis to technology buyers. Recent projects include helping software vendors evolve from perpetual to cloud-based pricing and providing technology buyers with guidance on how to measure and compare on premise costing with cloud and other utility-based solutions.