A recent Gartner® report, Predicts 2024: Geopolitics, SaaS and Generative AI Impact IT Vendor Risk explores the implications of trends for organizations and third-party support providers (TSPs), offering strategic insights and recommendations.
The shift toward subscription models and its impact on TSPs
Gartner predicts that by 2028, one of the major third-party support providers will fail due to the increasing adoption of subscription-based models by software vendors, creating potential vendor ecosystem risks for organizations. Software vendors often release new functionality on cloud-based versions that typically are offered on models before making it available on on-premises versions as part of their strategy to persuade customers to migrate to subscription.
The shrinking market for third-party support is concerning for TSPs, who may face a short-term increase in customers seeking cost reductions before migrating to subscription models. To survive, TSPs must expand their service offerings beyond traditional support. However, attracting and retaining talent in a contracting market will be challenging.
Key recommendations:
- Organizations using TSPs should conduct a thorough risk analysis to understand the potential impact of their provider’s failure
- Escrow arrangements should be placed to be used in the event of any TSP failure and to secure access to software source codes in the event of market exit
- For publicly traded TSPs, monitor income statements over the last four quarters to understand how expenses have changed in relation to revenue. If the ratios have not changed significantly, leverage that information to push back on increases
GenAI’s role in managing software and cloud contracts
By 2028, Gartner expects generative AI’s ability to decipher software and cloud vendor contracts will reduce the risk of noncompliance in software and cloud contracts by 30%. The complexity of terms and conditions in IT contracts can pose significant challenges for your organization, making it difficult to stay compliant. Traditionally, software and cloud vendor management leaders have had to manually review large volumes of contract content, but GenAI promises to automate and simplify this process.
By leveraging natural language processing, GenAI can help better interpret complex contract terms, including customized clauses and consumption patterns. According to the report, “Compliance is the balance between entitlements (contained in contracts) and consumption. GenAI’s ability to calculate an organization’s exposure based on its actual versus contracted consumption of software will enable SPVM leaders to make quick, informed and balanced licensing decisions. SAM functions within organizations will use GenAI to automate the licensing desk process for its business users, asking questions about the use rights and limitations of the products they deploy and manage. This will help to streamline license management processes.”
Key recommendations:
- Leaders must ensure accurate, up-to-date contract data to allow GenAI to provide a comprehensive analysis of entitlements
- Carefully test and customize GenAI tools to fit your specific organizational contexts, ensuring results are reliable and verifiable
- Consider privacy implications when training GenAI models and opt for private large language models if necessary
- Use GenAI to automate routine licensing desk tasks, allowing SAM teams to focus on cost optimization
Navigate an evolving landscape with confidence
The ongoing shift to subscription models and the integration of GenAI into contract management are transforming the IT landscape. It’s essential to remain vigilant, adapting your organization’s strategies to manage the risks associated with TSPs and leverage GenAI to enhance contract compliance and license management. By following recommendations in the Gartner report, we believe you can navigate these changes, ensuring they remain competitive and cost-effective in this increasingly complex environment.
To see more insights from Gartner, we invite you to download a complimentary copy of the latest report, Cut Software and Cloud Costs With the Right SAM and FinOps Managed Service, where we think you will learn how to truly accelerate SAM and FinOps success with an MSP.
Gartner, Predicts 2024: Geopolitics, SaaS and Generative AI Impact IT Vendor Risk, By Sundar Viswanathan, Ben Jepson, 6 December 2023.
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